Question

Discussion Question 1: As a manager or owner, what insight can accounting information about accounts receivable and bad debts provide you to help make business decisions? Discussion Question 2: Which depreciation method would choose if you acquired new machinery with a 10-year life in which expect to use it more in the earlier years of its useful life? Why?

Answer 1

1. The information that a manager or a owner can get by having an insight into the accounting information about accounts receivable and bad debts is that how much amount of goods are sold to the consumers on credit and how much is the amount that the consumers are not able to pay for the goods that they had bought. It will also help to decide how much of a provision is required to be kept in advance for bad debts. If a company has a high amount of accounts receivable but a small amount of bad debts then it shows that the company is efficient in doing the credit sales and gives goods on credit only to those consumers who can give the debt back. The manager or the owner can decide that they can do more credit sales as there is less chance of it becoming bad. If a company has a high amount of accounts receivable and a high amount of bad debts then it shows that the company is inefficient in doing the credit sales and gives goods on credit to consumers without a surety of getting the debt back. The manager or the owner can decide that they cannot do more credit sales as there is more chance of it becoming bad.

2.Double declining balance method is the method of depreciation that will be chosen if a machine with a 10 year life is acquired and when it is expected that it will be used more in the earlier years of it's useful life. It is because the double-declining balance method is a type of accelerated depreciation method that calculates a higher depreciation charge in the first year of an asset’s life and gradually decreases depreciation expense in subsequent years and so more depreciation will be charged in the earlier years as it will be used more during that time and less depreciation in the subsequent years because it will be used less in that time.