The Use of the Allowance Method of Accounting for Bad

question 62

Multiple Choice

The use of the allowance method of accounting for bad debts is preferred over the direct write-off method because of the:

• A)matching principle.
• B)historical cost principle.
• C)revenue recognition principle.
• D)full disclosure principle.

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Definitions:

Machine-hour

A unit of measure representing the operation of a machine for one hour, often used to allocate manufacturing overhead.

Margin of Safety

The difference between actual or projected sales and the break-even point, indicating the buffer amount that sales can decrease before reaching a loss.

Break-even Sales

The amount of revenue required to cover all fixed and variable costs, resulting in neither profit nor loss.

Sales

The total revenue generated from goods or services sold by a company within a specific period.