Anton Blair is the sales manager of a sporting goods company. A few years ago, Blair persuaded the owner to base a part of his compensation on the net income of the company. In December, Blair makes a trip to the accountants office to get an idea of this years net income. Based on the accountants estimated yearend financial statements Blair will receive a bonus of $6,000. This is much less than Blair anticipated. When Blair reviews the accountants estimates, he notices that the allowance for doubtful accounts has been increased significantly from $8,000 last year to $12,500 this year and bad debt expense has gone from $8,000 to $17,000. When Blair questioned the accountant as to why the big increase the accountant stated that the allowance account has a debit balance of $4,500. Blair has not taken any accounting classes and is unable to understand what the accountant is doing. He only knows that it is affecting his bonus. Since you are Blairs friend he has asked if you can help him make sense of this. Here are his questions for you:

1. Why is the accountant estimating bad debt? Isnt it more accurate to just periodically write off accounts that cannot be collected?

2. What effect does this increase in doubtful accounts have on the income statement and balance sheet?

3. Why are the allowance account and the bad debt expense different amounts?

Finally, Blair tells you he believes he can talk the accountant into reducing the estimate for doubtful accounts back to last years amount. What internal controls should the owner have in place to ensure accounting for bad debt expenses is accurate?