Accounting Correspondence Principle

Accounting Correspondence Principle
Correspondence basis of the principle of accrual accounting and revenue recognition. Revenue generation costs, all costs should be deducted from income earned during the same period according to the principle. This principle revenue, costs and time to better assess the viability of, and provides true performance and reduced mismatch. The related revenue is recognized bad debt expense reports for that year, sales roomates, an application of the principle of correlation.
Financing cash, services or credit represents the amount due to customers for purchase of goods. According to the budget, as the need for long or short-term assets, classified according to the expected duration of the time for the collection. Most cases roomates claims from the sale of products or services to customers.
To increase their sales, the company is expanding credit to customers. Curl customers' credit limits to give a purchasing decision. However, a company extends credit to a customer, the customer there is the risk of repayment. Specific rules and policies to extend credit to its customers in order to eliminate business risk. Perform credit checks to assess the creditworthiness of the customer. They ensure you receive the payment in time and in order to reduce the risk of non-payment, collection policy is created. Unfortunately they can not be charged because sales are still there. E 'the customer is going to the service provided, or simply refuse to pay back broke unhappy with. Society does not take legal action to try to collect their money, but they are usually very expensive. This claim is worthless, bad debt expense accounts reported that loss of income. For the measurement and reporting of such bad debts was necessary so to establish a reporting process.
There are two methods for recording bad debts expense. The first method is "Direct Transfer method" and the second "method Allowance" is.
Direct method is very weak and the cancellation of revenues and expenditures during the same period, enrollment does not apply to the principle of equilibrium. This method would be worthless at the end of a company to collect the money owed and enforcement will make every effort to expense draws only. It is easy to reduce the net realizable value of accounts receivable, because it has no effect on income.
This is a simple method, but the company is damaged during the year or a loser means an accurate estimate of bad debts is only allowed if it is not irrelevant. In accounting, an item as material if it affects large enough to assess their financial users. Found to be worthless and written off before the end of the reporting periods have passed through directly to the termination method. Proceeds from sale of loans are recognized in a period, but this is the cost of bad debts based on sales, not only recognized the following year. As a result of a mismatch between revenue and expenditure.
The preferred method is a method of recording bad debts expense deduction. This method is in accordance with generally accepted accounting principles. Receivables are valued at the lower of net realizable value. Net realizable value is less than the gross amount of receivables to provide bad debt accounts. We often hear Provision for doubtful receivables. This is considered to be the capital budget. This capital. Instead of a normal balance of credit as a deduction from a debit balance of this doubtful debts provision informs the users of financial credit accounts should be written off. As a method of sizes, from the sale of loans or credit on the basis of each period can be appreciated for doubtful receivables.
Estimated credit losses as a percentage of sales revenue associated with the cost of bad debts recorded in the same period, since the correspondence is consistent with the concept. This profit and loss account, profit and bad debt expense by providing a fixed percentage of the provision for doubtful receivables is calculated from period to period. Previous models of the disease or credit card sales and bad debt expense for the current year in order to provide a basis for a reasonable estimate or projection trends.
Planning for doubtful receivables aging or appreciate the benefits of all your credit accounts, a company can measure a single calculation. Loans based on the estimated using the current balance of the cost of bad debts against the backdrop of the first note, you have to consider. The amount of the item, the amount necessary to balance the amount of reserve funds is to balance the desired end.