Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 15 - No. 12)
If a company underestimates the allowance for doubtful accounts, what effect does this have on the financial statements?
Assets will be understated, and equity will be understated.
Assets will be overstated, and net income will be overstated.
Assets will be overstated, and liabilities will be overstated.
Expenses will be overstated, and net income will be understated.
Explanation
The allowance is directly related to the net realizable value of assets, and the bad debt expense impacts net income.
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