The Grass is Greener Corporation provides $6,000 worth of lawn care on account during the month.Experience suggests that about 2% of net credit sales will not be collected.According to the revenue recognition principle and the matching principle,the company should:

Question

Quizplus · Accepted Answer

According to the revenue recognition principle, the company should record the revenue in the period in which the lawn care was provided, which is the current month. However, the matching principle requires that the expenses related to generating the revenue be recorded in the same period. Since there is a likelihood that 2% of the credit sales will not be collected, the company should record an estimate of bad debt expense in the same period as the lawn care is provided. This will ensure that the expenses are matched against the revenue in the same accounting period.

The Grass Is Greener Corporation Provides $6,000 Worth of Lawn