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    Significant Accounting Estimate

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    What is an example of a significant accounting estimate?
    What is the importance of these estimates?
    How do ethics play into the decision making process?
    Which financial statements include significant accounting estimates? Why?

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    One example of a significant accounting estimate is a bad debt allowance on receivables. A company selling goods or services on credit knows from past transaction history that a certain percentage of its receivables will not be collectible and must be estimated and otherwise accounted for.

    The importance of these type of estimates is that a truer representation of the financial health of the firm is given relative to not making such estimates. For example, let's imagine a firm in an industry where typical bad debt ...

    Solution Summary

    The solution looks at significant accounting estimates and explains the importance of these estimates and includes a take on the ethics involved.