Question
Can anyone help verify my understanding what is the business decision and what is the financial-reporting decision based on the following statement by CEO? CEO
Can anyone help verify my understanding what is the business decision and what is the financial-reporting decision based on the following statement by CEO?
CEO began, "Despite having reached this year's total revenue target, I'm concerned about the recent downturn in sales. We need to broaden our customer base. However, I don't want to extend credit to just anyone. So, to offset the risk of selling to bad customers, we'll have to find a way to be stricter in screening potential customers and collecting from existing customers. In light of these changes, that 2 percent bad-debt estimate the controller has used in the past is double what we'll need for this year."
My understanding is: based on facts above, business decisions are like: "We need to broaden our customer base", "I don't want to extend credit to just anyone".
However, financial-reporting decision is like: "that 2 percent bad-debt estimate the controller has used in the past is double what we'll need for this year", in other words, this year, the controller should use 1% bad-debt estimate to prepare the financial statements.
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