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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