If the amount of uncollectible accounts expense is overstated at year end,
A)Allowance for Uncollectible Accounts will be understated.
B)net income will be overstated.
C)net Accounts Receivable will be understated.
D)total liabilities and stockholders' equity will be overstated.

Question

Quizplus · Accepted Answer

If uncollectible accounts expense is overstated, it means that more customer accounts are assumed to be uncollectible than they actually are. As a result, the allowance for uncollectible accounts, which is a contra asset account, will be understated. This, in turn, will cause the net accounts receivable to be understated, as the allowance is deducted from the gross accounts receivable to arrive at the net realizable value. Since net income is calculated by subtracting expenses, including the uncollectible accounts expense, from revenues, an overstatement of this expense will reduce net income, not increase it. Finally, total liabilities and stockholders' equity will not be affected by the overstatement of the uncollectible accounts expense.

If the Amount of Uncollectible Accounts Expense Is Overstated at Year