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10-26-10-memopart1 - incurred in that period should be...

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Memorandum To: CM 2 Management Team From: Leah Celani, Accountant Date: October 26, 2010 Subject: The Accrual System of Accounting Although the direct write-off method you have suggested seems practical and convenient, this approach for recording bad debt expense is not in conformance with the generally accepted accounting principles. By writing off bad debt when receivable is declared uncollectable, you are not matching costs with revenues of the period. This violates the accounting’s matching principle that states that costs
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Unformatted text preview: incurred in that period should be matched against the revenue generated in the same period. It is vital for your company to remain in accordance with GAAP in order to offer stock. I understand that using the direct write-off method will increase your company’s net profit, but it is better to state a lower net profit and still have the ability to offer stock by continuing to use the allowance method....
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