ou are the staff accountant of ABC Company. Your work is mainly focuses on Accounts Receivable group. You record the accounts receivable and provide allowance for doubtful accounts based on company’s estimate. On Year 2012 the company suffered from loss due to environmental disobedience. The DENR fine them 1M pesos for the infraction of the sea. With this, the company revise its policy of recording allowance of bad debts from 5% to 2%. The company has significant account receivable for the year and collection for this accounts are highly possible. On your trending analysis report, you noticed that you rarely record and write off any bad debts as part of the policy. You join the meeting with the new accounting policy and Hilary, the CFO said that the decrease of bad debts expense is immaterial to total accounts receivable. She insisted the accounting principles of materiality. Your controller agrees and immaterial to present the changes in the financial statements and ask you to calculate the potential bad debts. You calculated the new bad debts and resulted to 120,000. The total accounts receivable is 600,000. I Who are the key parties who can influence, or will be affected by, your decision? II. What fundamental ethical principles for accountants are most applicable and is there an apparent conflict between them?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
You are the staff accountant of ABC Company. Your work is mainly focuses on
The company has significant account receivable for the year and collection for this accounts are highly possible. On your trending analysis report, you noticed that you rarely record and write off any bad debts as part of the policy.
You join the meeting with the new accounting policy and Hilary, the CFO said that the decrease of bad debts expense is immaterial to total accounts receivable. She insisted the accounting principles of materiality.
Your controller agrees and immaterial to present the changes in the financial statements and ask you to calculate the potential bad debts. You calculated the new bad debts and resulted to 120,000. The total accounts receivable is 600,000.
I Who are the key parties who can influence, or will be affected by, your decision?
II. What fundamental ethical principles for accountants are most applicable and is there an apparent conflict between them?
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