University of Phoenix Wk 4 Ethics Accountability and Transparency Discussion

Question Description

Post a total of 3 substantive responses. This includes your initial post and 2 replies to other students.

Initial post

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?

Reply to at least 2 of your classmates. Be constructive and professional in your responses.

Student 1

Many businesses offer credit to customers because they think that it will increase their sales. How are they supposed to keep track of it? This is where aging of accounts receivable comes into play. The purpose of using aging accounts receivable is to keep track of credit accounts for your customers and to ensure that they make their payments on time. It’s great to see businesses that offer credit to their customers, but unfortunately the business may not know who will or will not make their payments. In this situation that the owner expects the percentage of receivables to be changed is ridiculous. Why is it that 20% of the accounts receivables is considered to be bad debts and is past 90 days late? There needs to be some responsibility taken on the owners part to ensure that these accounts are paid on time. If I was to be approached by the owner and requested to change the percentage I would politely say no and refuse to do this. That is falsification of documentation and I will have no part in that.

Student 2

Businesses allow customers to pay for goods via credit cards and store credit; some customers do not honor their obligations. The uncollectible amount creates an expense on the books called bad debts. The company can use one of the three methods to estimate bad debts, the aging accounts receivable, percentage of sales, and percent of the receivable process. The aging accounts receivable procedures track how long customer debts are outstanding. This method sort customers by the number of days the debt is uncollected and the past due accounts listed in 1-30 days, 31-60dys, 61-90dys, and over 90 days. A percentage is charged based on the uncollectible amount within certain due days. The rate of sale method estimates collectible based on the sales and accounts receivable. The percentage receivables assume that a certain percentage would be uncollectible.

To change from the aging account receivable to a fixed rate just before the end of a fiscal year would not be keeping with accounting standards and regulations. To ensure the financial statements are prepared according to accounting principles, companies should not change policies to suit their particular situation.

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