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as per matching concept the expenses related to revenue is recognized in the same accounting period. But when we make allowances on receivables we show it as expense as we are doubtful . But when the particular debtor pay back the money say in next year then we have to delete the allowances which result in increase in net profit in next year st. of P/L. Doesn’t that violates matching concept. Plz explain
In the year in which the allowance was created (or when the debt was written off, which has the same affect) then we are applying the prudence concept.
I take your point about what happens the following year if the receivable pays, but in that case it turns out we were wrong to have the expense in the previous year – but we can’t go back and change the previous year, so we ‘correct’ it in the current year.
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