Describe the diverse methods used to estimate bad debts.

Assignment Question(s):
Q1. Suppose you are an auditor who has been tasked with looking into the internal controls at a company. How can you evaluate the company’s internal controls to see if they are sufficient?
Q2. Why do companies use the allowance method to account for bad debts? Describe the diverse methods used to estimate bad debts in an accounting system. Provide examples for each method.
Q3. Consider that you own a business that purchases equipment for 50,000SR. How would you calculate this asset’s depreciation? Use the different methods to depreciate the equipment.
Note: To calculate depreciation, you must provide the salvage value, useful life, and annual units produced.

Answer & Explanation
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Q1. To evaluate a company’s internal controls, you can look at the company’s organizational structure, its accounting and financial reporting procedures, and its compliance with laws and regulations. You can also look at the company’s internal audit function and its procedures for handling complaints and investigating potential fraud.

Q2. Companies use the allowance method to account for bad debts b

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Step-by-step explanation
ecause it is a more accurate way to estimate the amount of bad debt expense that a company will incur. The allowance method takes into account the fact that not all customers who owe money will default on their payments. The allowance method also allows companies to estimate bad debts using different methods, such as the percentage of sales method, the aging of receivables method, and the direct write-off method.

Q3. To calculate depreciation, you need to know the salvage value, useful life, and annual units produced. The salvage value is the estimated value of the equipment at the end of its useful life. The useful life is the estimated number of years that the equipment will be used. The annual units produced is the estimated number of units of output that the equipment will produce in a year.

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