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Discussion Forum Index --> Accounting Questions --> Adjustment to A/R Allowance
Activomate (talk|edits) said:
| 31 March 2009
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| Client wants to change its estimate of thier A/R Allowance from a Percentage of Sales to a Percentage of Receivables. Unfortunatly, the adjustement to "true-up" their estimate would result in a negative(credit) bad debt expense position. Anyone see any issues with this presentation?
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Natalie (talk|edits) said:
| March 31, 2009
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| Would the change more accurately reflect the amount of doubtful accounts they are carrying?
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AEM CPA (talk|edits) said:
| 1 April 2009
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| Good question. I assumed that was the reason they were making the change, but you know what happens when we assume....
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Natalie (talk|edits) said:
| April 1, 2009
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| Given that this method more accurately reflects the doubtful accounts, I would say the change should be made. As far as the negative bad debt goes, I'm pretty sure you need to disclose the fact that a change has been made in the way the company determines its bad debt. You might look at the rules for change in accounting estimate to see what is required.
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Activomate (talk|edits) said:
| 1 April 2009
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| Yes, I was planning to disclose in the notes. Appreciate the help!
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AEM CPA (talk|edits) said:
| 2 April 2009
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| SFAS 154 has guidance on disclosure requirements. Having negative bad debt is not in and of itself sufficient to require disclosure, but you can always disclose whatever you want even if it's not required.
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AEM CPA (talk|edits) said:
| 2 April 2009
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| Generally, you disclose a change in estimate if it causes a material change in the company's financial position.
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Natalie (talk|edits) said:
| April 2, 2009
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| Agreed. Disclosures are generally required only for material items.
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