Valuation of Accounts Receivables

• Discuss the primary advantages and disadvantages of applying the direct write-off and the allowance method of writing off accounts. Even though the direct write-off method is not acceptable for generally accepted accounting principles (GAAP) reporting, take a position on whether or not estimating the allowance for doubtful accounts distorts gross income. Propose an alternative method to increase the accuracy of reporting. Explain your rationale.

• Identify at least three risk factors inherent in estimating the amount of customer write-offs. Explain the procedural steps in which accountants or auditors would follow to identify where material misstatement of receivables and associated gross income has occurred. Explain your rationale.