What is the effect of bad debts on revenue recognition?

Multiple Choice

• Bad debts must be of a remote likelihood in order to recognize revenue.

• Bad debts are ignored when determining whether to recognize revenue, but recognized as an expense on the income statement.

• The seller must believe it is probable it will collect the amounts it is entitled to collect.

• Bad debts are deducted from revenue to calculate net revenue on the income statement, similar to sales returns.