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Financial Statement effect of change in amount of provision for doubtful accounts

You have recently landed a job in the Accounting Department of a public company listed on the NASDAQ exchange. You have been asked to prepare year-end adjusting entries, including an appropriate adjustment to the Allowance for Doubtful Accounts. According to the Aged Accounts Receivable analysis, the Allowance should be $200,000. After showing your analysis to your supervisor, he tells you to change the age category of a $400,000 customer balance from "120 days past due" to "Current", and to prepare a new invoice to that customer with a date that places it within the "Current" category.

(1) What would be the effect of this change on the Income Statement, Balance Sheet, and Statement of Cash Flows?

(2) What action should you take? Hint: The Institute of Management Accountants has a recommended course of action in its Statement of Ethical Professional Practice. (IMA is also a very good organization for students to join in order to network with accounting professionals. Annual dues are at a very minimal student rate.)

Solution Preview

In this question, it is being instructed by the supervisor to change the age of accounts receivable of "120 days past due" into current. This will result in a lesser amount of allowance for doubtful debts. If the amount of allowance for doubtful debts is less, then it will result in inflated net income ...

Solution Summary

The following posting helps with questions regarding various types of financial statements.