Omission of provision reduction understates net assets and profit

Steps:

• Provision for doubtful debts is a contra-account deducted from accounts receivable (current assets).
• The adjustment reduces provision by $100, increasing net current assets by$100; omitting it leaves net current assets $100 lower than correct.
• Reducing provision decreases bad debt expense, increasing profit and capital by $100;omittingitleave$100 higher, understating profit and capital.

Why D is correct:

• Per accounting equation (Assets = Liabilities + Capital), understating net assets requires understating capital (no liability impact here), as the error symmetrically affects both via profit.

Why the others are wrong:

• A: Reverses both effects; actual omission understates, not overstates, assets and capital.
• B: Mistakes capital impact; omission understates capital via higher expense, not overstates it.
• C: Reverses asset effect; omission understates assets by overstating the contra-provision.

Final answer: D