What is the purpose of the allowance for doubtful debts?
- A To write off a specific customer's balance
- B To estimate receivables unlikely to be collected and match the cost to the period of sale
- C To increase reported profit
- D To record cash discounts given
Answer
To estimate receivables unlikely to be collected and match the cost to the period of sale
It applies the matching principle by recognising expected credit losses in the same period as the related sales, rather than waiting for a specific default.
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