FAR matching question

  • Creator
    Topic
  • #193668
    hohbo
    Participant

    Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of:

    A.

    consistency.

    B.

    going concern

    C.

    matching.

    D.

    substance over form.

    The correct answer is C, but I read this as more consistency than matching. The question sounds as if they are estimating current year expenses by assuming it will follow the same ratio as last year, which I interpret as using the same methodology and principle. How is this demonstrating the matching principle? Current year expenses are not being recorded with current year revenue, which I understand to be the key factor in matching.

Viewing 7 replies - 1 through 7 (of 7 total)
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  • #663938
    Anonymous
    Inactive

    You made a sale this year, you know that statistically 5% won't be collected. You expense it this year so that this expense for uncollectible account matched this year revenue. That's matching, current year revenue with related expenses

    That's how understand it

    #663939
    fsugirl2005
    Participant

    I agree with Anjanja.

    REG - 78
    FAR - 79
    AUD - 76
    BEC - 75

    I have been on this journey off and on for over 10 years. I think it's about time that I wrap this up.

    AUD - 10/21/16 (75----07/2010 expired)
    FAR - 10/28/16
    BEC - 11/2016
    REG - 01/2017

    Using Gleim CPA Review, Ninja Audio, Ninja Book

    #663940
    hohbo
    Participant

    No where in the problem does it mention the recording of revenue in this year to match against the recording of the expense for uncolllectible account though. I understand the principle, but it just seems that the question seems to be focusing more on the methodology of HOW they are determining how to record the expense (by assuming it will be consistent with the prior year's ratio of uncollectible accounts) rather than WHEN they are going to be recording it with the revenues.

    If you are saying that the mere fact that they are recording uncollectible accounts as an expense this year is then indicative of recording the expense in the same period as revenue…then I can see that relationship as demonstrating the matching principle. The question seems poorly worded then in my opinion if this is the case they are trying to make

    #663941
    Anonymous
    Inactive

    you can't record the account receivable and not record the revenue

    my guess is, they describe the method so that it was clear they are not using direct write-off method which doesn't follow the matching principle

    Consistency also matters, but if you were inconsistent with the method of estimating uncollectibles, the impact on F/S would probably be less if you were not estimating at all. Not sure

    #663942
    fsugirl2005
    Participant

    @hohbo

    You're reading too much into the question. Don't focus so much on the ratio part. It is just telling you they used a percentage in order to estimate uncollectible accounts expense. It's irrelevant whether they used a ratio from the prior year or ten years ago.

    And, current period expenses are being recorded with current year revenue in this particular problem.

    REG - 78
    FAR - 79
    AUD - 76
    BEC - 75

    I have been on this journey off and on for over 10 years. I think it's about time that I wrap this up.

    AUD - 10/21/16 (75----07/2010 expired)
    FAR - 10/28/16
    BEC - 11/2016
    REG - 01/2017

    Using Gleim CPA Review, Ninja Audio, Ninja Book

    #663943
    jaxon1024
    Member

    Using a percentage of sales emphasizes the income statement and matching. Using percentage of receivables or AR aging emphasizes asset valuation. That's all there is to it – don't over think it.

    Reg 85 (11-21-14)
    Aud 93 (1-17-15)
    Bec 89 (2-27-15)
    Far 92 (5-7-15)

    Becker Self Study and Wiley Test Bank

    #820428
    Anonymous
    Inactive

    I hate this question too.

Viewing 7 replies - 1 through 7 (of 7 total)
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