The Adjustment to Account for Future Bad Debts Has the Effect

question 64

True/False

The adjustment to account for future bad debts has the effect of (1)reducing assets and (2)increasing liabilities.The adjustment has the effect of (1)reducing assets and (2)increasing expenses.An increase in expenses reduces net income and retained earnings.

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Definitions:

Profit

The financial gain realized when the revenues generated from business activities exceed the expenses and costs incurred in generating those revenues.

Ending Inventory

The total value of all the goods a company has in stock at the end of a fiscal period, which is used to calculate the cost of goods sold.

Net Income

A business's remaining profit after taking away all costs and taxes from its generated revenue.

Overstates

The act of presenting values or figures in financial statements higher than they actually are, leading to a distorted view of a company's financial health.