Financial Reporting and Analysis Q92
0. Which of the following statements is most likely to be correct?
- A
The matching principle requires the adoption of the direct write-off method where a loss is only recognized when the customer actually defaults.
- B
A company estimates uncollectible accounts based on previous experience and this is recorded as a direct reduction of revenues.
- C
Under the matching principle, the estimated warranty expense is recognized in the period of the sale and not when the cost is actually incurred.
- Option : C
- Explanation : Statement A is incorrect because the matching principle requires the company to estimate the uncollectible accounts and not adopt the direct write off method. Statement B is incorrect because the estimate is recorded as an expense. Statement C is correct.
