The challenge businesses face when estimating the allowance for previously recorded sales is that:
A)at the time of the sale,it is not known which particular customer will not make their payment.
B)past default rates are not a good predictor of future default rates.
C)in bad economic times,fewer customers will have problems with their payments.
D)those sales have been closed into retained earnings.

Question

Quizplus · Accepted Answer

To comply with the expense recognition ("matching")principle,a company needs to record bad debts in the same period as the sale.The problem is that time will pass before the company discovers which particular credit sales and customer balances aren't going to be collected.These bad debts will likely be discovered in an accounting period following the sale,rather than in the same period as the sale.

The Challenge Businesses Face When Estimating the Allowance for Previously