ACCT 202 Chapter Notes - Chapter 7: Matching Principle, Accounts Receivable, Financial Statement
Document Summary
Uncollectable amounts are referred to as ad debts. There are 2 methods of account bad debts: ad debts. There are 2 methods of account bad debts: Records the loss from an uncollectible accounts recievable when it is determined to be uncollectable. Not the preferred method because it violates the matching principle. Matching principle: requires expenses to be reported in the same accounting period as the sales they help produce. Materiality constraint: states that an amount can be ignored if its effect on the financial statement un unimportant to users business decisions. At the end of each period an estimate is made of the total bad debts expected to be realized from that periods sales. It records estimated bad debts expense in the period when the related sales are recorded. It reports accounts receivable on the balance sheer at the estimated amount of cash to be collected. Allowance for doubt accounts: is a contra asset account for accounts receivable.
