If management underestimates the allowance for non-collectible accounts, this will cause net income for the period to be overstated.

Question

Quizplus · Accepted Answer

Underestimating the allowance for non-collectible accounts means that the balance sheet will show a higher accounts receivable balance than is realistically collectible, which will result in an overstatement of net income for the period. This is because the income recognized from those receivables will not actually be received, leading to a decrease in revenue in future periods.

If Management Underestimates the Allowance for Non-Collectible Accounts, This Will