Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

Financial Accounting

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

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Multiple Choice

The expense recognition principle, as applied to bad debts, requires that:

bad debt expense is recorded in the same period as the related sales revenue

bad debt expense is not recognized if the company expects to collect most receivables

bad debt expense is recorded when cash is received from customers

bad debt expense is recorded only when an account is determined to be uncollectible

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Verified step by step guidance

Understand the expense recognition principle: This principle states that expenses should be recognized in the same period as the revenues they help generate. This ensures proper matching of expenses and revenues in financial statements.

Identify the context of bad debts: Bad debts occur when a company cannot collect amounts owed by customers. The expense recognition principle requires that bad debt expense be recorded in the same period as the related sales revenue, even if the specific accounts that will become uncollectible are not yet identified.

Analyze the options provided: Evaluate each option against the expense recognition principle. For example, recording bad debt expense only when an account is determined to be uncollectible violates the principle because it delays recognition of the expense beyond the period of revenue generation.

Focus on the correct application: The correct approach is to estimate bad debt expense during the same period as the sales revenue is recognized, using methods such as the percentage of sales method or the aging of accounts receivable method.

Conclude the reasoning: Based on the principle, the correct answer is that bad debt expense is recorded in the same period as the related sales revenue, ensuring proper matching of expenses and revenues.