Problem
Ozzie Newsome has owned a car dealership for the past five years. The car dealership has been successful in the past accounting year with sales of $7,500,000. The dealership extends credit to loyal customers and at the end of the year, $2,350,000 is listed as to be received in the future. Of the amount owed to Ozzie, he expects $175,000 to not be collected. Answer the following questions.
i. Why would some of the amounts to be received in the future not be collected?
ii. How should Ozzie report and communicate to readers the amount to be received in the future while also communicating some amount is uncertain?
iii. Is the amount expected to be collected known and is an exact figure required by readers of the financial statements?
iv. What factors might influence the estimate of accounts not to be collected in the future?