Question

Margaret is the manager of a medium-size company. A few years ago, Margaret persuaded the owner to base a part of her compensation on the net income of the company. Each December she estimates year-end financial figures in anticipation of the bonus she will receive. If the bonus is not as high as she would like, she offers several recommendations to the accountant for year-end adjustments. One of her favorite recommendations is for the controller to reduce the estimate of doubtful accounts.

1. What effect does lowering the estimate for doubtful accounts have on the income statement and balance sheet?

2. Do you believe Margaret's recommendation to adjust the allowance for doubtful accounts is within her right as manager, or do you believe this action is an ethics violation? Justify your response.

3. What type of internal control(s) might be useful for this company in overseeing the manager's recommendation for accounting changes?

Answer 1

Answer:

Generally organizations would record the income when sales occured, however not when the payments are received.

1)

Doubtful accounts are the accounts which organizations feel would not get paid and consequently would be substracted from overall gain. Along these lines bringing down the value of estimated doubtful a/c's would build the estimation or vlaue of overall gain / net income.

2)

Its not inside her privileges, in light of the fact that as a manager she should act like a specialist of proprietor interests. If there should be an occurrence of she recommending only for a hike in remuneration, its viewed as she is putting her own interest in front of organization proprietor's advantage. Explicitly in the event that she do have a decent justified explanation behind modifying allowance doubtful a/c's, at that point its not moral voilation. Yet, here it is obviously characteristic that she is making her suggestions in desire for profits by organization, its not, at this point a faithful activity towards proprietor and consequently moral voilation.

3)

At whatever point the manager remuneration gets reflected with bookkeeping/accounting changes recommended, at that point the manager must incorporate a short description which were to be sent to proprietor or top managerial staff/BOD.