You are the manager of a physical therapist's office. You oversee reporting an estimate of the bad debt expense each month, and are familiar with estimating bad debt. Typically, in each period, 4% of patients do not pay their invoices.

Select ONE of the questions to discuss with your classmates:

• Why do the office records in the current period predict the bad debts which might occur in the future?
• What are the two methods for calculating bad debt expense? Which is best for this office, and why?
• Because bad debt is an estimate, why could fraud be involved with the reporting of this number? How would underreporting affect the income statement?
• Anytime management makes an estimate, there is the risk of earnings management or fraud. Accounting for bad debts requires management to make an estimate on the future collectability of receivables. Discuss why this could be an area at risk for earnings management.

Work to demonstrate your understanding of the material from this module and, where necessary, include your sources.