Your friend has operated a business for two years and has made many sales on credit.

His accountant has told him that he must estimate the amounts that will be uncollectible in the future to include in this year’s financial statements. Your friend is upset because he does not want “guesses” appearing in the financial statements and because he knows that accounting information should be reliable and accurate. Since he knows that you are currently studying accounting, he buys you dinner and before picking up the check asks you for your opinion.

Required: How would you answer your friend? Explain why the accountant is suggesting that an estimate of uncollectible accounts be included in this year’s financial statements and why your friend’s concerns are not critical. TYK-1