When converting an income statement from a cash basis to an accrual basis, which of the following is incorrect?
A)An adjustment for depreciation reduces the net income.
B)An adjustment for bad debts increases the net income.
C)A reduction in prepaid expenses decreases net income.
D)An increase in accrued payables decreases net income.

Question

Quizplus · Accepted Answer

An adjustment for bad debts actually decreases net income, as it reflects a more realistic depiction of revenue that is unlikely to be collected. The other options are correct, as adjusting for depreciation, reducing prepaid expenses, and increasing accrued payables all affect the timing and recognition of expenses and liabilities, thus impacting the net income.

When Converting an Income Statement from a Cash Basis to an Accrual