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The estimate based on the sales method can violate the matching principle because it may recognize revenue without corresponding expenses being recorded in the same period. This principle requires that expenses be matched with the revenues they help generate to accurately reflect a company's financial performance. If revenue is recognized prematurely or without aligning associated costs, it can lead to misleading financial statements and distort the true profitability of the business during that period. Thus, adherence to the matching principle is crucial for accurate financial reporting.
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Weaknesses of the direct write-off method is?
Violates the matching principle
Which principle best describes the conceptual rationale for the method of matching depreciation expense with revenues?
Systematic and rational allocation
Why is the direct write off method not accepted by GAAP?
There are two reasons why the direct write-off method is not allowed. First, applying the matching principle implies that the cost of the uncollectible accounts need to be expensed in the period of the sale. Giving credit to customers helps to generate sales (if this were not the case, the firm would simply demand payment at time of delivery). Thus, not creating an allowance violates the matching principle. Second, with the direct write-off method, accounts receivable are at the nominal value, whereas the 'true' value (the amount that is expected to be collectible) is most likely lower. Thus, the direct write-off is likely to overstate the value of accounts receivable.
What principle assumption or constraint does the direct write off method violate if uncollectibles are significant?
The accounts receivables will need to match the bad debt being written, and therefore this applies to the matching principle in accounting.
Why is the Direct Write off Method of accounting for uncollectible accounts not generally accepted?
The Direct Write-Off Method is not generally accepted because it violates the matching principle of accounting, which requires expenses to be matched with the revenues they help generate. This method recognizes bad debt expenses only when an account is deemed uncollectible, potentially distorting financial statements by not accurately reflecting the financial position in the period when the revenue was recognized. Additionally, it can lead to fluctuating profits and mislead investors, making it less reliable for assessing a company's financial health.
Weaknesses of the direct write-off method is?
Violates the matching principle
Could estimate based on sales method violate the matching principle true or false?
True. The estimate based on the sales method can violate the matching principle because it may recognize revenue and related expenses in different accounting periods. This misalignment can distort the financial statements, as expenses associated with generating sales might not be recorded in the same period as the revenue they help to generate. Adhering to the matching principle requires that expenses be matched with the revenues they produce, ensuring accurate financial reporting.
Which principle best describes the conceptual rationale for the method of matching depreciation expense with revenues?
Systematic and rational allocation
Why is the direct write off method not accepted by GAAP?
There are two reasons why the direct write-off method is not allowed. First, applying the matching principle implies that the cost of the uncollectible accounts need to be expensed in the period of the sale. Giving credit to customers helps to generate sales (if this were not the case, the firm would simply demand payment at time of delivery). Thus, not creating an allowance violates the matching principle. Second, with the direct write-off method, accounts receivable are at the nominal value, whereas the 'true' value (the amount that is expected to be collectible) is most likely lower. Thus, the direct write-off is likely to overstate the value of accounts receivable.
What principle assumption or constraint does the direct write off method violate if uncollectibles are significant?
The accounts receivables will need to match the bad debt being written, and therefore this applies to the matching principle in accounting.
Why is the Direct Write off Method of accounting for uncollectible accounts not generally accepted?
The Direct Write-Off Method is not generally accepted because it violates the matching principle of accounting, which requires expenses to be matched with the revenues they help generate. This method recognizes bad debt expenses only when an account is deemed uncollectible, potentially distorting financial statements by not accurately reflecting the financial position in the period when the revenue was recognized. Additionally, it can lead to fluctuating profits and mislead investors, making it less reliable for assessing a company's financial health.
When a company decides to switch from the double-declining method to straight-line method this change should be handled as a?
Change in accounting estimate. The switch from double-declining balance method to straight-line method should be treated as a change in accounting estimate and accounted for prospectively. This change should not be applied retroactively.
The direct write off method of accounting for uncollectible accounts violates the?
The_direct_write_off_method_of_accounting_for_uncollectible_accounts_violates_the
What is the inventory costing method that charges?
The inventory costing method that charges costs to inventory and recognizes them as expenses when the inventory is sold is known as the "matching principle." This principle aligns the costs of goods sold with the revenues they generate, ensuring accurate financial reporting. Common inventory costing methods that utilize this principle include First-In-First-Out (FIFO), Last-In-First-Out (LIFO), and Weighted Average Cost. Each method impacts the financial statements differently based on the flow of inventory costs.
What practice is when letting the expense follow the revenue?
This is the Accrual basis accounting method, which uses the matching principle (expenses following revenue) to record expenses when they are incurred, and revenue when it is earned (not on the date when cash is received or paid out).
When will a company use the allowance method of accounting for bad debts?
A company will use the allowance method of accounting for bad debts when it needs to match expenses with revenues in the same accounting period, adhering to the matching principle. This method is particularly useful for companies that extend credit to customers, as it allows them to estimate and recognize potential uncollectible accounts in advance, rather than waiting until specific accounts are deemed uncollectible. This approach provides a more accurate representation of a company's financial position and performance.
Why double stub matching is better than single stub matching?
Because in single stub method stub position has to be adjustible which create error......this is notin the case of double stub position method.........
