How Can Accounting for Bad Debts Be Used for Earnings

question 58

Multiple Choice

How can accounting for bad debts be used for earnings management?

• A) Determining which accounts to write-off.
• B) Changing the percentage of sales recorded as bad debt expense.
• C) Using an aging of the accounts receivable balance to determine bad debt expense.
• D) Reversing previous write-offs.

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Definitions:

Price of Inputs

The cost of resources used in the production of goods and services, including materials, labor, and overheads.

Sunk Cost

Expenses that have already been incurred and cannot be recovered, and should not affect future economic decisions.

Remodeling

The process of improving or updating the structure, layout, or appearance of an existing building or space.

Marginal Costs

The expense incurred from the manufacture of an extra single product or service unit.