What if a Company’s Allowance for Doubtful Accounts is Understated / Overstated
To A n swer This Questio n , Let’us Co n sider the two differe n t cases with simple example as show n below: Case 1: What if a company’s Allowance for Doubtful Accounts is Understated | Allowance For Doubtful Accounts Wrongly Understated Whe n this happens, then Allowance For Doubtful Accounts shows less Closing Balance on Debit Side ( Credit Balance ) on its Ledger and hence as a result the amount of Contra Asset Account i.e., Allowance For Doubtful Accounts that is deducted from Closing Balance of Accounts Receivable on Balance Sheet will make accou nt s receivable's N et Relizable Value overstated. Also Net I ncome / Net Profit will also be overstated due to less recorded amou nt of Uncollectible Accounts Expense / Doubtful Debts on Income Statement. Understanding on How To Rectify this Wrong Reporting By Using a Simple Example (Here N et Income = Rs. 500000) In order to Rectify this wrong reporting, the...