Question

The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet and which is based on an estimate of bad debts, is an application of the

Answer 1

Answer:

The answer is: application of matching principle and contra-asset

Explanation:

The allowance for doubtful accounts is a management estimate of bad debts (amount owed by the customers that is deemed uncollectible). In order to demonstrate the recoverable amount of the accounts receivable, it is usually applied as a reduction in the asset (accounts receivable) by applying contra asset (that is, a way of netting the two accounts).

The estimate of bad debt is in conformity with the matching principle of accounting. The principle states that the revenue generated in a particular accounting period must be matched against the expense for that particular period. In this instance, the the bad debt expense is the expense.