The Expense Recognition (matching) Principle, As Applied To Bad Debts, Requires:


    In an ideal world, every debt must be paid in full and in full. In an ideal world, every transaction should be free of cost. In the real world, there are costs – both monetary and emotional.

    In the real world, you’re often forced to consider cost as part of your decision-making process. You can’t completely remove cost from your reckoning, but you can limit how much you’re forced to think about it.

    By limiting how much money you owe and how much you have left to pay, you will increase your chances of getting out of debt faster. By recognizing that money is a factor in choosing which debts to settle (and/or paying) off, we can limit the damage that unnecessary debt may cause us.

    Debts are recorded at their nominal value

    This principle requires that debts be recorded at their nominal value, or at least at the amount they were worth when they were incurred.

    This means that no matter how much you pay someone when you owe them, they should be owed the same amount of money. It also means that no matter how little you pay someone when you owe them nothing, they should still be owed money.

    In banking and finance language, a debt is called a debt obligation. When a person owes money to someone else, the person’s bank owes them the funds to repay the person.

    If the person can’t afford to repay their debt with what they’re paying now, then new debt must be created to repay it. New debt must be made out of something with which one can “owe” it, or there will be no stopping demands for payment.

    Debts must be fully documented

    the expense recognition (matching) principle, as applied to bad debts, requires:

    Documenting debt can be difficult. Many of the time methods suggest that debts must be paid in full, which makes it more difficult to recognize when debts have been paid in full or because of expenses have been documented.

    Many times this is due to lack of awareness or recognition that a debt has been incurred. Once recognition occurs, it can be hard to determine if all obligations have been met or if one should continue paying off the debt.

    By not taking steps to record debts and identify cutoffs as they come, you may find it difficult to determine when a debt is fully paid off and what effects having that debt would have on your overall finances. You may also overlook other debts that may need to be recorded and recognized as part of your overall debt control plan.

    Provisions for bad debts must be made when there is a significant adverse change in the debtor’s financial circumstances

    the expense recognition (matching) principle, as applied to bad debts, requires:

    As previously mentioned, most debts have a lien on your property rights. This is the case even if the debt was not directly related to property (for example, a loan to buy a car or boat).

    By law, all debts must be paid in full and in accordance with their terms. However, there are certain instances where debtors may enter into debt reduction agreements (or bankruptcy filings), where full payment is made but only on certain items such as credit card charges.

    In these cases, the debts are reduced to a level where they can be recognized by your credit card company as bad debt and match up for you. This helps prevent overstating bills and running out of funds to cover them.

    If you see that a debt is having an adverse effect on the debtor’s health and education, it is important to recognize that debt for this reason.

    Bad debts are recognized when the creditor becomes convinced that recovery is unlikely

    the expense recognition (matching) principle, as applied to bad debts, requires:

    If you’re unable to pay your debt in full and on time, then a debt recognition principle should be applied. The law should recognize that part of the cost of debt collection is unnecessary expense, and place consequences on those who fail to comply.

    This principle applies in a different way to debts that are not too large or expensive, but whose cost has been recognized by the creditor as being likely to occur. For example, if your credit card company believes that you will spend your next bill at grocery stores, then it may qualify for a store card with no annual fee, even though you may not necessarily need it.

    It is important to note that this principle does not apply just towards debts whose failure to be repaid in full and on time may mean that they fall into disrepair. It must also be applied toward debts where recovery is unlikely due to the cost of recognition.

    The principle applies to tax purposes as well

    the expense recognition (matching) principle, as applied to bad debts, requires:

    In either case, debt recognition is key. In the expense recognition model, you have to pay attention to how much you have spent and what you have owed for.

    In the debt principle, you must recognize that if you owe money, you may not be able to obliterate it immediately. Even in the early stages of debt counselors’ work with people, they find that people rarely just pay off their debts, and usually does not happen until things are stable.

    This is true in any type of counseling, as people often needs help staying focused on their debts and developing a plan to get out of them. This can be hard when there are always new bills to worry about.

    In any case, the importance of this principle should be stressed again and again throughout any type of counselor work.


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