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Content type
User Generated
Subject
Accounting
School
University of Phoenix
Type
Homework
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Historically, your company has calculated bad debts using an aging of accounts receivable. Near
the end of the fiscal year, the company is in a cash crunch and needs to borrow money from the
bank, using accounts receivable as collateral. The owner of the company knows that many of the
accounts receivable are more than 90 days past due, resulting in net receivables equal to only 80%
of total receivables.
Respond to the following in a minimum of 175 words:
The owner asks you to change the method of estimating bad debts to a flat 3% of receivables.
What should you do?
My response:
If the owner asks me to change the method of estimating bad debts to a flat 3% of total accounts
receivable. One approach by which corporations derive an estimate for the value of bad debts
under the allowance method is to compute bad debts as a proportion of the total accounts
receivable on their books. In the case, of debt collection, The Company is currently utilizing the
debtor's aging method to estimate bad debts. Still, it wishes to switch to the 3 percent receivables
method to boost the effective receivables from the current level of 80 percent. An example of
ethical misbehavior would be deceiving a bank to secure a loan; nevertheless, the bank will ask
the company why the technique was changed. The corporation will be obligated to answer their
queries. The overall balance of each category is multiplied by an estimated percentage of
uncollectibility for that category. The sum of all such calculations is used to the estimated amount
of bad debts. So that accounts receivable aging schedule below divides special credit purchases
into five groups, each representing a different period.

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Historically, your company has calculated bad debts using an aging of accounts receivable. Near the end of the fiscal year, the company is in a cash crunch and needs to borrow money from the bank, using accounts receivable as collateral. The owner of the company knows that many of the accounts recei ...
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