Zach Allen is the accountant for a large retail company. It is now the end of th

Question

Zach Allen is the accountant for a large retail company. It is now the end of the accounting period and time to prepare financial statements. Zach has requested that the company's sales manager give him an estimate of uncollectible credit sales for the period. Zach says that he needs this information so that he can record bad debt expense. The sales manager tells Zach to "not worry about it. You can just record the expense as the accounts become uncollectible." Comment on this situation and who you think is right. Do you see any problem with the "wait and record approach"?

Explanation / Answer

Answer:-

Zach Allen was absolutely right in asking the sales manager to provide him the estimate for uncollectible credit sales so that he can arrive at a provision for estimated bad debts. Hpwever the sales manager rather than providing figures asked Zach to not to worry and record the expenses for bad debts as and when they become uncollectible.

This approach has serious implications from accounting perspective since all expenses for a particular period need to be provided for. Hence this will not enable Zach to arrive at correct profits for a particular period. Since this can be possible only if provision for bad debts for sales made in a particular year is provided for .

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