Question

Which of the following can lead to understated assets?

Select one:

a. Accelerated recognition of revenues

b. Underestimated allowances for bad debts

c. Delayed asset write-downs

d. Overstated depreciation/amortization on long term assets

Answer 1

d. Overstated depreciation/amortization on long term assets

The amount of depreciation is accumulated or expensed and deducted from the gross Fixed assets. Hence overstatement of depreciation will result in understatement of assets as the value is reduced in the Books of accounts.

Option a is incorrect since revenues are depicted on the Income statement while assets are shown on the balance sheet.

Option b is incorrect since lower allowance of bad debts will overstate the accounts receivable.

Option c is incorrect since delay in the write down of assets will again overstate them rather than showin the written down value.