Coming up with a few ideas for this question: A heavy-duty trucks parts re-manufacturing company has hired you as a consultant to review its current accounting procedures and to provide it with a report addressing changes that you feel need to be made to improve its internal controls, and the accounting and reporting processes.

The company president does not understand the recommendations that you have offered to improve the accounting and reporting of uncollectible accounts. The company currently uses the direct write-off method and you have suggested that it use the accounts receivable aging method to estimate its future bad debts. The president stated:

In my opinion, financial statements should be based on what actually took place rather than what we think will happen in the future. In other words, I think they should be objective rather than subjective. After all, our bad debt expense has been almost the same amount for each of the past three years and is thus very predictable. By using the direct write-off method, we are reporting exactly what took place. Why do we need to change?

Draft a one-page memorandum in Word responding to the concerns and objections of the company president, and in support of your recommendation for the company to adopt the receivable aging method going forward.