A major purpose of using an Allowance for Doubtful Accounts is to recognize uncollectible accounts expense in the same accounting period as the related sales which caused the expense. True or False?

Question

Business

Susan Lawson

30 October, 13:36

A major purpose of using an Allowance for Doubtful Accounts is to recognize uncollectible accounts expense in the same accounting period as the related sales which caused the expense. True or False?

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Answers (1)

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Addison Tanner · Answer 1

True

Explanation:

Allowance is made to be ready and prepared for any kind of loss to be incurred, or expense to be beared. Based on relative information and estimate an approximate amount is provided for.

When an yearly allowance is made for bad debts losses, the purpose is to meet the loss of bad debts due to current year sales on credit.

As the allowance is made yearly, and that represents the system of providing for losses, and to meet the criteria of matching principle to match revenue with its related costs, this is essential.

Thus, the statement is question is True.