The matching principle, as applied to bad debts, requires:
A)That expenses be ignored if their effect on the financial statements is unimportant to users' business decisions.
B)The use of the direct write-off method for bad debts.
C)The use of the allowance method of accounting for bad debts.
D)That bad debts be disclosed in the financial statements.
E)That bad debts not be written off.

Question

Quizplus · Accepted Answer

The matching principle requires that expenses be matched with the revenues they help to generate. For bad debts, under the allowance method, an estimate of the total amount of bad debts is recorded as an expense in the same period as the related sales revenue. This matches the expense of bad debts with the revenue they helped to generate, which satisfies the matching principle. The direct write-off method does not satisfy the matching principle because it only records bad debts when they are actually known to be uncollectible, regardless of when the related sales were made. Therefore, choice B is incorrect. The other options are either irrelevant to the matching principle or contradictory to it, making choices A, D, and E incorrect.

The Matching Principle, as Applied to Bad Debts, Requires