Allowance method and accounting principles?

Question

Is the allowance method that is used for valuing account receivables an example of the matching principle?

Thanks you!

Answer 1

Not really directly related to matching principle (but all accounting principles do indirectly comply with the matching principle, since it is a basic tenet of accounting).

It's more related to the "measurable" and "collectable" part of revenue recognition (since it has already been "earned").

It's not directly related to matching as you are not trying to match expenses with revenues. The expense (or contra-revenue) is booked irrespective of the timing of the revenue.

A good example of the matching principle is depreciation, where you expense the cost of a fixed asset over an extended period of time when it is expected to generate revenues (rather than expensed all at once).

Answer 2

The matching principle in the accounting means that for for each dollar of revenue we have to identify the dollar expense to generate it.

Receivable account is generated from the sale fo services or products , which means we have generated a certain amouns of dollars in revenue.
The expense in relation to this revenue is the cost of product or service related to this revenue.

The allowance method is related to the acconting priciples in relation to the presentation of the receivable in the a fair value or recovable value.
The allowance is related to the inability of the client to honor the its debt within a certain period. While we identify a lack of payment of a certain receivable or while analyzing the financial position of our customer we identify that its financial position will worsen in the future ( this is one of the elements there are others as well in considering the ability of the client to honor the debt) than we calculate and register in the books this inability through the allowances on bad debt.
Therefore the presentation in the books (financial statements) of the receivables is done on a assumed recovable value or fair value.