Under the prudence concept, an expected loss on doubtful customer balances is generally:
Correct answer: A. Recognised when a reasonable estimate is possible
- A. Recognised when a reasonable estimate is possible
- B. Ignored until the customer defaults
- C. Recorded as revenue when the sale occurs
- D. Recognised only after legal recovery fails
Explanation
Prudence requires probable losses to be recognised when they can be reasonably estimated. Waiting for complete default would overstate receivables and profit.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
Practise Accounting Principles
351 free Accounting Principles MCQs from Accounting, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Accounting questions like this
Accounting is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Accounting Principles questions
A business pays insurance for the next twelve months in advance. Under accrual accounting, the amount relating to future months is initially recorded as:
Under cash-basis accounting, revenue from a service is generally recorded when:
A business receives cash from a customer who previously bought goods on credit. Which entry is correct?
If a business is no longer expected to continue operating, which valuation approach becomes more relevant than normal going-concern valuation?
A loan received from a bank is normally classified in the business records as:
Which expenditure is most likely to be treated as capital expenditure?