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:

Negotiation

A process of discussion aimed at reaching an agreement between two or more parties.

Indorses

A variant spelling of "endorses," meaning to sign the back of a check or document, transferring rights or expressing approval.

Unauthorized Indorsement

A signature placed on a negotiable instrument (like a check) without proper authority or consent, often leading to questions of validity and fraud.

Burden Of Loss

Refers to the responsibility to bear the financial impact of damage, loss, or destruction of property in legal or insurance contexts.