explain how establishing an allowance account satisfies the

explain how establishing an allowance account satisfies the expense recognition principle.

Solution

As per the Accrual concept ,Expense should be recognised in the year in which it is incurred irrespective of when such expense is actually paid.

so using accrual concept ,an enterprise shall create or set aside an appropriate amount in allowance account in the year when sales are made and not in the year Receivable become actually become bad debt.

As Bad debt relates to sales(credit) ,so an appropriate amount shall be set aside in the year in whcih such credit sales is made.