What Is the Effect of Bad Debts on Revenue Recognition

question 204

Multiple Choice

What is the effect of bad debts on revenue recognition under the proposed ASU?

• A)Bad debts are recognized as an extraordinary item.
• B)Bad debts must be estimable 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 an expense.

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Definitions:

Fatigue

A state of physical or mental weariness resulting from exertion, reducing efficiency and capacity for work.

Action Potentials

Rapid and temporary electrical impulses that travel across the membrane of nerve cells, facilitating neuronal communication.

Synapse

The junction between two neurons or between a neuron and muscle fiber, where electrical or chemical signals are transmitted.

All-or-none Law

A principle stating that the strength of a response of a nerve or muscle fiber is not dependent on the strength of the stimulus. If a stimulus is above a certain threshold, a nerve or muscle fiber will fire.