Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 18 - No. 25)
What is the primary purpose of creating a provision for doubtful debts?
To avoid paying taxes.
To reduce the value of the business's assets.
To comply with the matching principle.
To artificially inflate profits.
Explanation
The matching principle requires that expenses (like bad debts) are matched to the revenues they helped generate in the same accounting period.
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