A company has credit sales of \$20,000 in Year 1 and writes off \$2,000 in Year 2. How should this be reflected in the financial statements?

Bad debt expense is overstated and should be reduced in Year 2.

Revenue is understated and should be increased accordingly in Year 2.

Revenue is overstated in Year 1, and bad debt expense is understated in Year 1.

Revenue and bad debt expense are correctly stated and properly matched in Year 1.