The Statement Concerning the Allowance for Doubtful Debts Account That

question 21

Multiple Choice

The statement concerning the Allowance for Doubtful Debts account that is not true is:

• A)Allowance for Doubtful Debts is used to adjust receivables for estimated bad debts because individual debtor's balances cannot be removed from the ledger unless there is indisputable evidence they are bad
• B)Allowance for Doubtful Debts is a contra-asset account designed to reduce receivables to estimated realisable value
• C)Allowance for Doubtful Debts represents cash set aside to cover losses incurred as a consequence of customers being declared bankrupt
• D)Allowance for Doubtful normally has a credit balance

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Definitions:

Total Liabilities

The combined amount of all financial obligations a company owes to external parties, including loans, bonds payable, and accounts payable.

Current Ratio

A financial metric assessing a firm's capacity to settle short-term debts or obligations due within a year, determined by dividing its current assets by its current liabilities.

Dividend Yield Ratio

A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Common Stock

A type of equity ownership in a corporation, representing a claim on a portion of its assets and earnings.