Which Statement Concerning the Allowance for Doubtful Debts Account Is

question 17

Multiple Choice

Which statement concerning the allowance for doubtful debts account is not true?

• 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 debts normally has a credit balance.

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Definitions:

Monopolistic Competition

A market structure in which many companies sell products that are similar but not identical, allowing for competition based on price, quality, and innovation.

Oligopoly

A market structure characterized by a small number of firms dominating the market, leading to limited competition.

Monopolistic Competition

A market structure characterized by many firms selling products that are similar but not identical, allowing for significant differentiation and competition on factors other than price.

Pricing Power

The ability of a company or entity to control or influence the price of its products or services in the market.