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:

Micrometers

Precision measuring instruments capable of taking very small measurements, often used in mechanical engineering and machining to ensure accuracy to the thousandth of a millimeter.

Dial Calipers

Precision measuring tools that use a calibrated dial to measure the distance between two opposite sides of an object, often used in mechanical engineering and metalworking.

Flat Rate

A pricing structure where a service or product is offered at a consistent price, regardless of different variables that might affect cost.

Workweek

A period of seven days typically used to refer to the days on which work is done, usually Monday through Friday in a standard full-time job.