Jim: This year has been great for business with fantastic customers. This should definitely help our net

Question:

Jim: This year has been great for business with fantastic customers. This should definitely help our net income and bonuses for the year!
Nancy: Exactly what do you mean, Jim?

Jim: Well, with great customers who should pay their bills, we will not need to establish an allowance for doubtful accounts for our accounts receivable.
Nancy: Wait a minute, Jim. In my accounting classes, we always recorded bad debts expense and the related allowance account. Therefore, I believe we need to estimate our bad debts and prepare an adjusting entry at year-end.
Jim: But with good customers, I don’t think it is required to establish an allowance account. Without recording bad debts expense, our net income should increase by $250,000, which definitely helps our year-end bonuses!
Nancy: We need to check whether this is acceptable under GAAP.

Required:

Use the FASB Codification to determine whether GAAP requires the establishment of an allowance account for all accounts receivable. What specific Codification references support your conclusion?

GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...

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