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Overstatement and understatement of allowances

This topic has 1 reply, 2 voices, and was last updated 8 years ago by Ken Garrett.

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November 11, 2016 at 11:47 pm #348524
yiing
Member
- Topics: 5
- Replies: 9
Hi, I came across this question and couldn’t understand the reason behind the answer given.
1. A review of pre year end correspondence with customers to identify any disputed balances.
A. Overstatement of allowances
B. Understatement of allowances
Answer given is B. Why is this so?
November 12, 2016 at 9:07 pm #348644
Ken Garrett
Keymaster
- Topics: 10
- Replies: 10538
Seems to me could be either A or B. The client could have made a 100 % allowance for a bad debt, but the correspondence could show that the customer was willing to pay, say 50%.
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