What Are the Effects on the Accounting Equation When a Company

question 22

Multiple Choice

What are the effects on the accounting equation when a company makes the adjustment to record bad debt expense using the allowance method?

• A) Assets and owners' equity increase.
• B) Assets and owners' equity decrease.
• C) Assets increase and owners' equity decreases.
• D) Assets decrease and owners' equity increases.

---

Definitions:

Net Income

The total profit of a company after deducting all expenses, taxes, and losses, indicating its financial performance over a period.

Total Expenses

The sum of all costs and expenses incurred by a business during a specific period, including operating expenses and cost of goods sold.

Direct Materials

Raw materials that can be directly linked to the production of specific goods or services.

Factory Overhead

Indirect costs associated with manufacturing, such as utilities, maintenance, and management expenses, not directly tied to production volumes.