If a company is overly optimistic about debt collection, the company will understate bad debt expense and:
A) overstate net income; and days to collect will fall.
B) overstate net income; but days to collect will rise.
C) understate net income; and days to collect will rise.
D) understate net income; and days to collect will fall.

Question

Quizplus · Accepted Answer

If a company understates bad debt expense, it overstates net income because expenses are lower than they should be. Days to collect will rise because the company is not accurately accounting for the time it takes to collect receivables.

If a Company Is Overly Optimistic About Debt Collection, the Company