George, a sole trader, sells goods on credit, and uses the direct write-off method for recording bad debts. The balance for accounts receivable at the end of the last financial year ended 31 December was $12 000. There was $1000 of bad debts that were written off this year. From an accrual perspective, for last year, which of the following is incorrect?
A) Profit and equity were overstated.
B) Profit and assets were overstated.
C) Accounts receivable and assets were overstated.
D) Profit and liabilities were overstated.

Question

Quizplus · Accepted Answer

Liabilities are not affected by accounts receivable or bad debts, so profit and liabilities being overstated is incorrect.

George, a Sole Trader, Sells Goods on Credit, and Uses