What is the effect of a bad debt on the statement of financial position, the income statement and the cash flow statement?
A) Reduce the receivables in the statement of financial position, no effect on the income statement, no effect on the cash flow statement
B) Reduce the receivables in the statement of financial position, show as expense in the income statement, no effect on the cash flow statement
C) No effect on the statement of financial position, show as expense in the income statement, no effect on the cash flow statement
D) No effect on the statement of financial position, show as expense in the income statement, reduce the cash inflows in the cash flow statement

Question

Quizplus · Accepted Answer

A bad debt reduces the amount of receivables in the statement of financial position as it is no longer expected to be collected. It also needs to be recognized as an expense in the income statement as it represents a cost to the company. However, it does not affect the cash flow statement directly as the bad debt is a non-cash item.

What Is the Effect of a Bad Debt on the Statement