The correct answer is:
|
|
Understated |
Overstated |
No effect |
|
Gross profit |
|
|
x |
|
Net profit |
|
x |
|
|
Receivables |
|
x |
|
An increase in the allowance for receivables will reduce profits and receivables. Gross profit will not be affected since allowances for receivables are dealt with in the net profit section.
