mock 2 #20

Says that the doubtful accounts were reduced by so much… then why is the answer saying it should be reversed? to be prudent?

When you reduce doubtful accounts its a sign of manipulation and the analyst may want to reverse it. Reducing doubtful accounts is always seen as bad.

Wouldn’t you then increase A/R by reversing it? All of the options say decrease

AP goes up b/c the analyst likes to think the AP wont get paid off

No, you would want to decrease A/R…because the allowance for doubtful accounts is a contra account to A/R. The higher “allowance for doubtful accounts” is, the lower net A/R is. If you are lowering the “allowance for doubtful accounts” (without any valid reason) you are artificially making it look like your A/R is higher.

right, thanks. I’ve studied myself retarded.

damn, ur right im retarded too

So whats the other adjustment to make it all balance? Reduce A/R and . . .

and increase allowance for doubful accounts.

pump down equity? thats a total shot in the dark ironically i got this right in the exam :expressionless: viva italia 1luv

I’ll slap myself in the face so you don’t have to.

Allowance for Doubtful Accounts is actually a contra asset, the decrease of A/R and the increase of allowance for doubtful accounts both happen on the asset side.