What Is the Effect of Bad Debts on Revenue Recognition

question 134

Multiple Choice

What is the effect of bad debts on revenue recognition?

• A) The seller must believe it is probable it will collect the amounts it is entitled to collect.
• B) Bad debts must be of a remote likelihood in order to recognize revenue.
• C) Bad debts are deducted from revenue to calculate net revenue on the income statement, similar to sales returns.
• D) Bad debts are ignored when determining whether to recognize revenue, but recognized as an expense on the income statement.

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Definitions:

Motivational Principle

A principle in psychology that seeks to explain how motivation affects human behavior, focusing on the stimuli that drive individuals to act in certain ways.

Dynamic Nature

The characteristic of systems, organizations, or processes to be continually changing or evolving over time in response to various factors.

Goal-directed Manner

A behavior or process that is focused and organized towards achieving specific objectives.

Internal, Controllable Events

Events or occurrences within an organization that can be managed or influenced by the organization's actions and decisions.