CFA Practice Question

There are 90 practice questions for this study session.

CFA Practice Question

Which statement is true?

I. Failure to record an adjusting entry for uncollectible accounts expense will cause the operating income for the period to be overstated and current assets to be understated.
II. The net realizable value of accounts receivable decreases each time an account receivable is written off through the allowance method.
A. I only
B. II only
C. Neither of these statements is true.
Explanation: I. Failure to record the uncollectible accounts expense will cause the operating income to be overstated because total expenses will be understated. The collectible balance of the accounts receivable however, will be overstated until the allowance account is properly credited.II. The write-off reduces the allowance account and the accounts receivable account by the same amount. Therefore the net realizable value remains unchanged.

User Contributed Comments 2

User Comment
shajidubai good question
CJPerugini Accounts Receivable = Asset
Allowance for Doubtful Accounts = Contra-Asset

AR (Credit $X)
AFDA (Debit $X)
NRV = AR Debit Balance - AFDA Credit Balance
-$X - -$X = 0
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