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 paid.According to the revenue recognition principle and the expense recognition principle,the company should:

Question

Quizplus · Accepted Answer

According to the revenue recognition principle, revenue should be recognized when earned, regardless of when payment is received. Therefore, the Grass is Greener Corporation should record the $6,000 worth of lawn care as revenue in the same period it is provided. However, in accordance with the expense recognition principle, expenses should be recognized in the same period as the revenue they help to generate. Since there is a risk of the company not receiving payment for 2% of its sales, it would be appropriate to estimate and record bad debt expense in the same period as the revenue is recognized. This will result in a more accurate matching of expenses to revenue on the company's income statement. Therefore, choice A is the best answer.

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