On December 31,2010,Aurora Enterprises failed to make the necessary adjusting entry for estimated uncollectible accounts.This error would cause an:
A)understatement of net income and an understatement of liabilities
B)overstatement of net income and an understatement of liabilities
C)overstatement of net income and an overstatement of assets
D)understatement of assets and stockholders' equity

Question

Quizplus · Accepted Answer

Failing to adjust for estimated uncollectible accounts would mean that expenses are understated (since the bad debt expense is not recognized), leading to an overstatement of net income. Additionally, assets would be overstated because accounts receivable would not be reduced by the allowance for doubtful accounts.

On December 31,2010,Aurora Enterprises Failed to Make the Necessary Adjusting