The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable written off

Question:

The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable written off in the current year.

Dickinson follows the policy of debiting Bad Debt Expense as accounts are written off . The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts.

All of Dickinson?s sales are on a 30-day credit basis. Sales for the current year total $2,200,000. The balance in Accounts Receivable at year-end is $77,000 and an analysis of customer risk and charge-off experience indicates that 12% of receivables will be uncollectible (assume a zero balance in the allowance).

Instructions

a. Do you agree or disagree with Dickinson?s policy concerning recognition of bad debt expense? Why or why not?

b. By what amount would net income differ if bad debt expense was computed using the percentage of-receivables approach?

Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...