Asked by MUHAMMAD OSAMA on May 23, 2024
Verified
A change in the percentage rate used to estimate bad debts expense will have a negligible impact on reported earnings.
Percentage Rate
A proportion, often expressed as a percent, used to determine the interest to be charged or paid on a financial instrument or the growth rate of an investment.
Reported Earnings
The income stated in a company's financial statements, reflecting the company's performance over a specified period, typically a fiscal quarter or year.
- Familiarize yourself with the mechanisms for recording bad debt expense and their consequences on financial statements.
Verified Answer
CA
crystal allenMay 25, 2024
Final Answer :
False
Explanation :
A change in the percentage rate used to estimate bad debts expense can have a significant impact on reported earnings as it affects the amount of revenue recognized and the amount of expenses incurred. A higher rate would result in a higher bad debts expense, reducing reported earnings, while a lower rate would result in a lower bad debts expense, increasing reported earnings.
Learning Objectives
- Familiarize yourself with the mechanisms for recording bad debt expense and their consequences on financial statements.
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