Sweet Home’s reduction of receivables’ allowance should be reversed, reducing the net receivables balance…should this increasing net receivables??
I agree, I found that inconsistent with what I thought about reducing bad receivables allowance. As far as I know bad receivables is a contra account to trade receivables.
I got hung up on this too…but i think how it should be interpretated is…the question states that it was during bad economic times. So Sweet home is being overly optimistic about thinking people will actually pay their debt. So their reduction in receivable allowance should be reversed…meaning…increase their bad debt allowance which reduces AR. I dunno, my guess. Kinda confusing.
kellc319, I think you are right, but their wording is painfully confusing…