Question

How can accounting for bad debts be used for earnings management?a. Determining which accounts to write-off.b. Changing the percentage of sales recorded as bad debt expense.c. Using an aging of the accounts receivable balance to determine bad debt expense.d. Reversing previous write-offs.

Answer 1

Answer:

B) Changing the percentage of receivables recorded as bad debt expense.

Explanation:

The percentage of receivables method is used to derive the bad debt percentage that a business expects to experience. The technique is used to populate the allowance for doubtful accounts, which is a contra account that offsets the accounts receivable asset.

Earnings management is the use of accounting techniques to produce financial statements that present an overly positive view of a company's business activities and financial position