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:

Absorption Costing

A financial recording technique that incorporates every manufacturing expense such as direct materials, direct labor, alongside all overhead costs, whether variable or fixed, into the product's cost.

Company Performance

An assessment of how well a company is achieving its financial and operational objectives, commonly measured through financial indicators, sales metrics, and profitability ratios.

Absorption Costing

Definition: An accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.

Inventory

Inventory refers to raw materials, work-in-process, and finished goods that are held by a company in anticipation of eventual sale.