If doubtful debts are overestimated:
A)profit for the current year will be overstated.
B)profit for following years will be overstated.
C)profit for the following years will be understated.
D)profit over the total life of the business will be understated.

Question

Quizplus · Accepted Answer

When doubtful debts are overestimated, it means that the expense related to bad debts is also overestimated in the current year, leading to an understatement of profit in the current year. Consequently, if those overestimations are corrected or if actual bad debts are less than estimated in the following years, the profit for those years will be overstated because the expenses will be lower than initially anticipated.

If Doubtful Debts Are Overestimated