An error in which of the following receivable accounts typically does not self-correct over time?

• A. Accounts Receivable
• B. Allowance for Doubtful Accounts
• C. Notes Receivable
• D. Interest Receivable

Answer: (B)

Verified step by step guidance

1. Understand the concept of self-correcting errors: In accounting, some errors in accounts may naturally correct themselves over time as transactions are recorded and reconciled. However, certain accounts may not self-correct due to their nature or the way they are managed.
2. Analyze the accounts listed: Accounts Receivable, Allowance for Doubtful Accounts, Notes Receivable, and Interest Receivable. Each of these accounts serves a specific purpose in tracking receivables and related adjustments.
3. Focus on Allowance for Doubtful Accounts: This account is used to estimate and record the portion of receivables that are expected to be uncollectible. Errors in this account typically do not self-correct because it is based on management estimates and requires periodic adjustments.
4. Compare with other accounts: Accounts Receivable, Notes Receivable, and Interest Receivable are transactional accounts that are updated as payments are received or interest accrues. Errors in these accounts may self-correct as transactions are reconciled over time.
5. Conclude why Allowance for Doubtful Accounts does not self-correct: Since this account relies on subjective estimates and adjustments rather than direct transactional activity, errors in this account require deliberate correction by management and do not resolve automatically.