Reserve for Doubtful Receivables

Running head: RECEIVABLES 1



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Allowance for the doubtful accounts does represent the best estimate by the management of the total amounts of the accounts receivable which the customers will not have to pay for, (Weygandt, Kimmel & Kieso, 2015). It does not reflect the subsequent experience which could be different from the expectation. If the experience differs from the estimation, the management makes an adjustment of the methodology used so as to bring the reserve into alignment with the actual results. There are several actions to take in the estimation of the doubtful accounts. The management can decide to lower it which would consequently have some effects on it.
It can have some effects on the income statement. By reducing the estimates for the doubtful accounts, the expenses would be understated. This would make the net income to be highly overstated. This would make the profits larger than they are by the reduction of the bad debt expense. Lowering the estimates for the doubtful accounts also has effects on the balance sheet. This is because it would increase the assets due to the fact that the doubtful account is considered to be a contra asset account, (Weygandt, Kimmel & Kieso, 2015). This makes the balance sheet seem to be better by the overstatement of the assets since there would be an understating of the contra-asset allowance for the doubtful account.
There are several duties of a manager in an organization. Within the stated responsibilities of managers, it is not his or her duty to engage in the accounting departments activities. Therefore, it was not right for Blair to give his recommendation in the accounts department. This is why his action is an ethic violation. The manager can easily pad his bonus by making the accountant do such kind of entries. The best internal control that can be done is to set rules and ensure that the manager only manages the business only and not the accounting activities of the business.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & Managerial Accounting. John Wiley & Sons.

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