The mean can be compared to the benchmark figure of one to two years to determine whether a firm's allowance for doubtful accounts
balance is reasonable in relation to subsequent write-offs.
A change to a taxpayer's method for determining its allowance for doubtful accounts
for its applicable financial statements is a change in accounting method to which Sec.
This disclosure proposal bears an obvious resemblance to the long-standing requirement that calls for reporting details about a company's allowance for doubtful accounts
. It would give investors insight into a critical area of the company's operations, regardless of whether the company is on the paying or receiving end of a vendor incentive program.
Any potential entry to reduce the allowance for doubtful accounts
would be as follows:
For calendar-year taxpayers, the balance of any allowance for doubtful accounts
calculated using the reserve method for tax purposes as of December 31, 1986, must be included in taxable income ratably over a four-year period beginning in 1987.
Cash 1,000,000 Allowance for doubtful accounts
and notes 600,000 Interest revenue 166
Its balance sheet for that date reported a $10,000 net increase in allowance for doubtful accounts
. Q also wrote off a $3,000 worthless receivable from a previous year.
Other difficult, judgmental areas may include: * Allowance for doubtful accounts
; * Reserves for sales returns and allowances; * Inventory excess, obsolescence, and lower of cost or market reserves; * Warranty accruals for claims against the company; * Warranty claims against vendors; and * Loss reserves, especially loss contract reserves.
Such allegations went to the heart of the audit and asserted defects in seven principal areas: (1) treatment of leases as sales; (2) transactions as direct financings; (3) understatement of allowance for doubtful accounts
; (4) irregularities in accounting changes; (5) examination of intercompany accounts; (6) disclosure of accounting changes; and (7) concessions to management to book a lesser amount of adjustments.(3)
Finally, say you are evaluating a potential foreign acquisition that has had to make a particularly tough estimate - the allowance for doubtful accounts
, inventory obsolescence, or the resolution of a lawsuit, for example.
A provision may be made for any potentially uncollectible amounts by crediting an Allowance for Doubtful Accounts
Visual presentation of the aging will aid in determining if the allowance for doubtful accounts