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:

Fair Value Hedge

A hedge that is used to mitigate the risk of changes in the fair value of an asset or liability or an unrecognized firm commitment.

Cash Flow Hedge

A financial strategy used to manage the risk of fluctuations in cash flow due to changes in exchange rates, interest rates, or commodity prices.

Other Comprehensive Income

Income that is not part of net income, including items that have not been realized or that are not typical earnings, such as foreign currency translation adjustments.

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) that is globally accepted.