Accounts Receivables
Anton Blair is the manager of a medium-sized company. A few years ago, Blair persuaded the owner to base a part of his compensation on the net income the company earns each year. Each December, he estimates year-end financial figures in anticipation of the bonus he will receive. If the bonus is not as high as he would like, he offers several recommendations to the accountants for year-end adjustments; one of his favorite recommendations if for the controller to reduce the estimate of doubtful accounts. In your response, address the following: What effect does lowering the estimate of doubtful accounts have on the income statement and balance sheet? Do you believe Blair’s recommendation to adjust the allowance for doubtful accounts is within his right as a manager, or do you believe this action is an ethics violation? Justify your response. What type of internal control(s) might be useful for this company in overseeing the manager’s recommendations for accounting changes?
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Accounts receivables
Sometimes, a manager can be required to reduce doubtful account projections if and when he had previously overestimated the accounts, and feels that this overestimation under-represents the organization’s net gains. However, Blair was not operating under this reason as he wanted to increase his earnings. Reducing the projection of doubtful accounts will have an impact on the balance sheet and the income statement because it increases profit by lessening bad debt expense. It consequently makes the balance sheet looks good by exaggerating assets as the contra asset allowance for doubt...