Failure to record bad debt expense at year end will result in an:
A) overstatement of assets.
B) understatement of net profit.
C) overstatement of expenses.
D) understatement of liabilities.

Question

Quizplus · Accepted Answer

Failure to record bad debt expense at year end will result in an overstatement of assets, as accounts receivable (which includes amounts that may never be collected due to bad debt) will be recorded at a higher value than they are actually worth. This can also lead to an overstatement of net profit if the bad debt expense is not recorded in the same period as the related sales, leading to an understatement of expenses and a higher net profit.

Failure to Record Bad Debt Expense at Year End Will