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; and 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

Being overly optimistic about debt collection leads to understating bad debt expense, which in turn causes net income to be overstated because expenses are lower than they should be. Additionally, if the company is not recognizing bad debts accurately, it will appear as though customers are paying their debts more slowly than they actually are, causing the days to collect (a measure of the average number of days it takes to collect receivables) to rise. This is because the outstanding receivables will be higher, including those that realistically should have been written off.

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