A Decline in the Level of Working Capital Will

question 11

Multiple Choice

A decline in the level of working capital will:

• A) working capital is not related to risk.
• B) reduce risk.
• C) increase risk.
• D) leave risk unchanged.

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Definitions:

Allowance for Doubtful Accounts

A contra-asset account used to estimate and offset the amount of receivables that may not be collected.

Uncollectible Accounts

Accounts receivable that a company does not expect to collect due to customer defaults.

Bad Debt Expense

The estimated amount of credit sales that are not expected to be collected, representing potential loss to the company.

Allowance Method

An accounting technique used to account for bad debts, where estimated uncollectible accounts are expensed, adjusting the accounts receivable balance.