How can accounting for bad debts be used for earnings management?
A)changing the percentage of aged receivables that comprise the allowance balance
B)using the percentage-of-sales method to determine bad debt expense
C)determining which accounts to write-off
D)reversing previous write-offs

Question

Quizplus · Accepted Answer

By changing the percentage of aged receivables that comprise the allowance balance, a company can manipulate the amount of bad debt expense and, therefore, their reported earnings. This approach allows companies to adjust the allowance balance, without necessarily reflecting the true credit risk of their customers.

How Can Accounting for Bad Debts Be Used for Earnings