George, a Sole Trader, Sells Goods on Credit, and Uses

question 101

Multiple Choice

George, a sole trader, sells goods on credit, and uses the direct write-off method for recording bad debts. The balance for accounts receivable at the end of the last financial year ended 31 December was $12 000. There was $1000 of bad debts that were written off this year. From an accrual perspective, for last year, which of the following is incorrect?

• A) Profit and equity were overstated.
• B) Profit and assets were overstated.
• C) Accounts receivable and assets were overstated.
• D) Profit and liabilities were overstated.

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