Under the prudence concept, an expected loss on doubtful customer balances is generally:
Correct answer: B. Recognised when a reasonable estimate is possible
- A. Ignored until the customer defaults
- B. Recognised when a reasonable estimate is possible
- 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.
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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.
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