Does estimating the allowance for doubtful accounts provide the opportunity to distort gross income? Provide support for your rationale.
Bad debt Expense:
Bad debt is the recognition of short-term loss for the account receivables. Bad debt expense is recorded under the direct method or the allowance method. Under the allowance method, bad debt is recorded separately in the allowance for doubtful debt (bad debt) account.
Answer and Explanation:
Yes, estimating the allowance for doubtful accounts provide the opportunity to distort gross income.
Explanation: The doubtful debt is a charge against the profit, under GAAP (generally accepted accounting principle). If the amount of doubtful account is recorded with a high amount then, it would distort the profit.
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from Financial Accounting: Homework Help ResourceChapter 3 / Lesson 20