Receivables - Coursework Example

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Allowance for doubtful debts is the amount reduced from a company’s account receivables that appear on the balance sheet (Cyert, Davidson & Thompson, 1962). This is the amount that customers will not pay for various reasons. Reducing the allowance for doubtful debts increases…
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al affiliation Allowance for doubtful debts is the amount reduced from a company’s account receivables that appear on the balance sheet (Cyert, Davidson & Thompson, 1962). This is the amount that customers will not pay for various reasons. Reducing the allowance for doubtful debts increases the current assets on the balance sheet and reduces the bad debts expenses on the income statement. An increase in current assets increases the gross profit by the amount of reduced allowance for doubtful debts.
The rights to recommend the adjustments of the allowance for doubtful debts according to the accounting ethics should lie solely with the accountants. This is because the accountants after assessing his books of accounts are at a position to make a decision based on the profits or losses made in the year and the amounts of the accounts receivables due for the year. Blair’s recommendation could be biased and uninformed based on the bonuses of the medium sized companies as all managers’ aims are to maximize on profits.
Internal controls are logical measure adopted by an organization used in ensuring that their business runs effectively to protect the organization from collapsing, such measures includes reviews and procedures. Detective internal controls which are measures taken after an irregularity has occurred, in this case the managers recommendation for accounting are useful for the future decision making. Some of the useful detective controls include the performance and quality assurance of the company reviews, reconciliations of the books of accounts to aid the manager in making sound decisions, conducting audits on the company’s’ books from different years and comparing inventory records with those of the different years. This way the manager is more knowledgeable and not just profit oriented.
Cyert, R. M., Davidson, H. J., & Thompson, G. L. (1962). Estimation of the Allowance for Doubtful Accounts by Markov Chains. Management Science, 8(3), 287-303. Read More
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