A. “Valuation of Accounts Receivables”
Discuss the primary advantages and disadvantages of applying the direct write off and the allowance method of writing off accounts. Even though the direct write off method is not acceptable for generally accepted accounting principles (GAAP) reporting, take a position on whether or not estimating the allowance for doubtful accounts distorts gross income. Propose an alternative method to increase the accuracy of reporting. Explain your rationale.
Identify at least three (3) risk factors inherent in estimating the amount of customer write offs. Explain the procedural steps in which accountants or auditors would follow to identify where material misstatement of receivables and associated gross income has occurred. Explain your rationale.