Which of the Following Best Describes the Application of Generally

question 108

Multiple Choice

Which of the following best describes the application of generally accepted accounting principles to the valuation of accounts receivable?

• A) Realization principle-Accounts receivable are shown at their net realizable value in the balance sheet.
• B) Matching principle-The loss due to an uncollectible account is recognized in the period in which the sale is made, not in the period in which the account receivable is determined to be worthless.
• C) Cost principle-Accounts receivable are shown at the initial cost of the merchandise to customers, less the cost the seller must pay to cover uncollectible accounts.
• D) Principle of conservatism-Accountants favor using the lowest reason?able estimate for the amount of uncollectible accounts shown in the balance sheet.

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Definitions:

Marginal Cost

The rise in overall expenses associated with the manufacturing of an extra unit of a good or service.

Average Cost

The total cost of production divided by the number of units produced, a measure of the cost per unit.

Cost Function

A mathematical model or formula used to express the total cost of production as a function of varying levels of output.

Production Function

A mathematical relationship expressing the maximum output that can be produced from a given set of inputs under certain technological constraints.