[Topsya]

Hey guys!

I need your professional opinion on some “interesting” accounting methods I have to use at work.

Particularly – methods for Allowance for Doubtful Accounts.

I just have my doubts regarding the “correctness” of the way they are doing it.

Anyways, here is the situation.

4 times a year (well, quarterly) we determine which receivables are collectible or not.

Lets say we’ve got $10,000 AR and we determine that $3,000 of those are not collectible.

Now we make a JE

(let’s call it entry #1)

DR – Bad Debt Expense

CR – Allowance for Doubtful Accounts

This all is fine. However, when we write off a receivable, we do it this way:

(entry #2)

Dr – Bad Debt Expense

Cr – AR

And then, 3 month later, when quarter ends, we REVERSE the entry #1 and make a new determination which receivables are collectible or not…. etc… then repeat steps 1 and 2

Isn’t it a little bit…. Cancels the whole concept of accrual accounting? DOES ANYONE ELSE DO IT THIS WAY? What kind of an accounting is that???

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Kenada]

@ OP – The way your company does it – does seem a bit odd.

I get what they are trying to do but hmmmmm.. is this a large company that you work for?

CA Candidate. 05/27/2014 ~ 786/110
I am done!!

[nicole2035]

@topsya no. i may be wrong but it looks like the person is doing a direct write off but pretending like they aren't. it depends on how the new estimates are calculated and if it's based off aging

but i assume the person who is calculating it knows what they're doing, and prob knows smething we dont

.

[nicole2035]

@topsya no. i may be wrong but it looks like the person is doing a direct write off but pretending like they aren't. it depends on how the new estimates are calculated and if it's based off aging

but i assume the person who is calculating it knows what they're doing, and prob knows smething we dont

.

[Topsya]

bahahah

yup, its an international mid-sized company

Our aging is full of errors due to some system malfunctions, so we just don't use it

Estimates are made on a client-by-client basis, e.t. collections manager knows each client (there are several dozens of them, not too many) and collections manager “predicts” how much is noncollectable.

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Topsya]

bahahah

yup, its an international mid-sized company

Our aging is full of errors due to some system malfunctions, so we just don't use it

Estimates are made on a client-by-client basis, e.t. collections manager knows each client (there are several dozens of them, not too many) and collections manager “predicts” how much is noncollectable.

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Topsya]

@nicole2035

I AM THE PERSON WHO DOES IT lol

and then there was a person before me doing the exact same thing. And then we have a CFO, who TELLS us to do it this specific way.

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Topsya]

@nicole2035

I AM THE PERSON WHO DOES IT lol

and then there was a person before me doing the exact same thing. And then we have a CFO, who TELLS us to do it this specific way.

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[nicole2035]

@topsya lol that's what i meant. but i know how that goes, ‘you' post them but it's someone else telling you to d it that specific way. have u ever asked the manager why u do the entry that way?

[nicole2035]

@topsya lol that's what i meant. but i know how that goes, ‘you' post them but it's someone else telling you to d it that specific way. have u ever asked the manager why u do the entry that way?

[Mayo]

Your method isn't GAAP. Although the net receivables are correct, JE #2 only has one purpose: to avoid an expense hitting the books. Now, if you want to book an accrual, then do a look back analysis to see what the actual bad debt was…I don't have a problem with that.

For example, assuming your receivables are due 3/1, on 2/28 you book Bad Debt based on best estimates:

Dr. Bad Debt Expense. 200

Cr. Allowance for DA. 200

On 3/1, you do a look back analysis and see that only 180 is Bad Debt. So JE#2 is:

Dr. Allowance. 20

Cr. Bad Debt Expense. 20

Alternatively you can simply take that into consideration at 3/31 when estimating Bad Debt. In other words, if it's normally 200, then you simply book 180 to take into account the 20 that was overestimated at 2/28.

But like mentioned before, a reversal should have $0 P&L impact.

Mayo, BBA, Macc

[Mayo]

Your method isn't GAAP. Although the net receivables are correct, JE #2 only has one purpose: to avoid an expense hitting the books. Now, if you want to book an accrual, then do a look back analysis to see what the actual bad debt was…I don't have a problem with that.

For example, assuming your receivables are due 3/1, on 2/28 you book Bad Debt based on best estimates:

Dr. Bad Debt Expense. 200

Cr. Allowance for DA. 200

On 3/1, you do a look back analysis and see that only 180 is Bad Debt. So JE#2 is:

Dr. Allowance. 20

Cr. Bad Debt Expense. 20

Alternatively you can simply take that into consideration at 3/31 when estimating Bad Debt. In other words, if it's normally 200, then you simply book 180 to take into account the 20 that was overestimated at 2/28.

But like mentioned before, a reversal should have $0 P&L impact.

Mayo, BBA, Macc

[Topsya]

@Mayo

“my” method does not avoid htting the books. MINE does double- hitting

entry #2 increases expense AGAIN, and then I carry that doubled expense till the next quarter when I am reversing the original entry

it's like accrual never happened. I am actually writing off AR directly

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Topsya]

@Mayo

“my” method does not avoid htting the books. MINE does double- hitting

entry #2 increases expense AGAIN, and then I carry that doubled expense till the next quarter when I am reversing the original entry

it's like accrual never happened. I am actually writing off AR directly

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Topsya]

@nicole2035

“have u ever asked the manager why u do the entry that way?”

oh I did. He said smth like “this is how we do it and there is nothing wrong with this method”

Oh and we don't do GAAP. We just dont. This is just a random example. There are many more. It's some creative accounting is going on there.

Hey, is it legal do not follow GAAP? I mean, it's not a publicly traded company, but I was under an impression everyone must use GAAP

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Topsya]

@nicole2035

“have u ever asked the manager why u do the entry that way?”

oh I did. He said smth like “this is how we do it and there is nothing wrong with this method”

Oh and we don't do GAAP. We just dont. This is just a random example. There are many more. It's some creative accounting is going on there.

Hey, is it legal do not follow GAAP? I mean, it's not a publicly traded company, but I was under an impression everyone must use GAAP

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Author]

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