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Allowance for Doubtful Accounts

I'm confused when I look at a question about Allowance for Doubtful Accounts:

"As the VP Finance, what action(s) would you take in light of the balance in the allowance for doubtful accounts?"

I understand that the large writeoffs occurred during the year would need to be investigated. Would the following need to be revised upon anyway, regardless of the economic situation?

- determine whether credit checks on customers are sufficient

- need to re-evaluate factor given present economic situation

Reply to
ssylee
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"ssylee" wrote

Yes and yes. Not only do you make credit decisions based on the current economic situation in general, but you also need to look at the economic situation of the customer as well. So in a good economy, certain customers may create their own problems that might prevent them from paying the account. It may be too aggressive of expansion plans, changes in ownership or management, or other factors that should give you a hint of potential problems.

In the current economy, it may be that you have to have a more customized credit policy (per customer) than a blanket one. Some you may need to drop the hammer on and cut off all credit. Others you may need to extend terms out a bit.

Reply to
Paul Thomas, CPA

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