What is the effect of bad debts on revenue recognition?
A) The seller must believe it is probable it will collect the amounts it is entitled to collect.
B) Bad debts must be of a remote likelihood in order to recognize revenue.
C) Bad debts are deducted from revenue to calculate net revenue on the income statement, similar to sales returns.
D) Bad debts are ignored when determining whether to recognize revenue, but recognized as an expense on the income statement.

Question

Quizplus · Accepted Answer

A contract does not exist for purposes of applying the revenue recognition model if the seller believes it's not probable that it will collect the amount it's entitled to receive under the contract.

What Is the Effect of Bad Debts on Revenue Recognition