Accounts Receivable

Historically, your company has calculated bad debts using ageing of accounts receivable. Near the end of the fiscal year, the company is in a cash crunch and needs to borrow money from the bank, using accounts receivable as collateral.

 

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The owner of the company knows that many of the accounts receivable are more than 90 days past due, resulting in net receivables equal to only 80% of total receivables. Respond to the following in a minimum of 175 words: The owner asks you to change the method of estimating bad debts to a flat 3% of receivables. What should you do? For more information on this check: https://en.wikipedia.org/wiki/Accounts_receivable

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