The matching rule
A)results in the recording of a known amount for bad-debt losses.
B)necessitates the recording of an estimated amount for bad debts.
C)requires that all bad-debt losses be recorded when an individual customer defaults.
D)is violated when the allowance method is employed.

Question

Quizplus · Accepted Answer

The matching rule requires that expenses be recognized in the same period as the revenue they helped to generate. When a company extends credit to customers, it is expected that some of those customers will not pay. To match the expense of bad debts with the revenue earned from credit sales, an estimated amount of bad debts is recorded in the same period as the credit sales. This estimation is done using the allowance method, which is a way of recognizing bad debts expense based on a percentage of credit sales or accounts receivable balance. Therefore, Choice B is the correct answer.

The Matching Rule