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I didn’t understand the grammar of this question and make me confused
An increase in an allowance for receivables of 8000 has been treated as a reduction in the allowance in the financial statement. What of the following explains the resulting effects?
I did:
Because treating as a reduction in allowance will lead to the decrease in irrecoverable debts expense, then profit will overstate 8000? But the answer is 16000 and I dont know how to make that
Otherwise, the receivable will overstate by 16000 as well, but I dont understand? I learnt in text book that receivable only decreases when you believe on the debt that wont be paid from customer?
Could you give me the hand?Firstly, if there has been no change in the allowance, then having treated it as a reduction would have overstated the profit by just 8,000.
However, it was not just that there was no change in the allowance, the allowance was to be increased, and so this overstates the profit by another 8,000.
If ever something is treated in the opposite way to what it should have been, then the overall effect is two times the amount – once to remove the error, and then a second time to put the correct entry.
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