Management Uses the Ageing Approach Method to Calculate the Allowance

question 13

Multiple Choice

Management uses the ageing approach method to calculate the allowance for doubtful debts. An analysis of the ageing of accounts receivable shows a substantial increase in the accounts receivable in the over-90-days category. Management does not adjust the allowance for doubtful debts at year-end. As a result:

• A) assets are overstated, and net income is overstated.
• B) assets are overstated, and net income is understated.
• C) assets are understated, and net income is overstated.
• D) assets are understated, and net income is understated.

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Definitions:

Weighted-Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory based on the weighted average of all units available for sale during the period.

Equivalent Units of Production

A concept used in cost accounting to standardize the quantity of output by converting unfinished products into their equivalent of finished goods.

Cost Per Equivalent Unit

A calculation used in process costing that measures the cost of producing a single unit, accounting for partially completed units.

Job-Order Costing

An accounting method that accumulates and assigns costs to specific jobs or batches of products.