Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 43 - No. 37)
How does the provision for doubtful debts affect the financial statements?
It increases the value of accounts receivable on the balance sheet and increases net income on the income statement.
It reduces the value of accounts receivable on the balance sheet and decreases net income on the income statement.
It increases the value of accounts receivable on the balance sheet and decreases expenses on the income statement.
It reduces the value of accounts receivable on the balance sheet and increases net income on the income statement.
Explanation
The provision for doubtful debts lowers the reported value of the receivables and leads to bad debt expense, thereby reducing net income.
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