How can accounting for bad debts be used for earnings management? a. Determining which accounts to write-off. b. Changing the percentage of sales recorded as bad debt expense. c. Using an aging of the accounts receivable balance to determine bad debt expense. d. Reversing previous write-offs.

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Business

Abigayle Goodman

21 March, 18:05

How can accounting for bad debts be used for earnings management? a. Determining which accounts to write-off. b. Changing the percentage of sales recorded as bad debt expense. c. Using an aging of the accounts receivable balance to determine bad debt expense. d. Reversing previous write-offs.

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Lilah Chang · Answer 1

B) Changing the percentage of receivables recorded as bad debt expense.

Explanation:

The percentage of receivables method is used to derive the bad debt percentage that a business expects to experience. The technique is used to populate the allowance for doubtful accounts, which is a contra account that offsets the accounts receivable asset.

Earnings management is the use of accounting techniques to produce financial statements that present an overly positive view of a company's business activities and financial position