The adjustment for bad debts using the percentage of receivables ignored the credit balance in the Allowance account.This error would cause:

Question

Quizplus · Accepted Answer

Ignoring the credit balance in the Allowance account will result in understating the balance in the account, which will lead to the understatement of net income. This is because the amount in the Allowance account is used to adjust the amount of bad debts expense reported on the income statement, which ultimately affects net income. Therefore, the correct choice is C.

The Adjustment for Bad Debts Using the Percentage of Receivables