While reviewing the books of Simon's Pest Control Service you discover that no adjusting entry was made for estimated bad debts traceable to sales in 2018 (the company's first year of operation). Assuming this error is not corrected, which of the following is true at year-end 2018?

Question

Quizplus · Accepted Answer

Failing to adjust for estimated bad debts means that accounts receivable (an asset) is not reduced to reflect expected uncollectible amounts, leading to an overstatement of assets. Additionally, expenses are understated because the bad debt expense is not recognized, resulting in an overstatement of profit.

While Reviewing the Books of Simon's Pest Control Service You