In the year ended 31 December 20X1, XYZ receives an email confirming that a major customer has gone into liquidation and will be unable to pay its suppliers.
Which of the following is the impact of adjusting for this event?
I'm feeling confident about C. The receivables might stay the same, but the profits are definitely going to take a hit since the company can't collect on that debt. Accountants, am I right? *laughs*
Hmm, this is a tricky one. I'm torn between B and D, but I think I'll go with B. Gotta love those allowances for doubtful accounts, am I right? *winks*
I'm going with D. If the customer has gone into liquidation, the receivables would decrease and the profits would also decrease since the company won't be able to collect on that debt.
Option B seems like the correct answer here. The receivables would decrease as the customer is unable to pay, and the allowance for doubtful accounts would increase to account for the potential loss.
Yes, that makes sense. The allowance for doubtful accounts would need to increase to reflect the potential loss from the customer going into liquidation.
Yes, that makes sense. The allowance for doubtful accounts would need to increase to reflect the potential loss from the customer going into liquidation.
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