Any time goods are sold or services are provided without animmediate payment in exchange, there is an account receivable created torecord the amount due to the provider. While the intention is tocollect 100% of these sales made on account, that isn’t always thereality. Companies have to be realistic in their collection expectationsof their accounts receivable. Because of this, they often need toreview and estimate their bad debt expense and their net realizablevalue of their accounts receivable, or in other words, what they reallyexpect to collect of those accounts.

William Commerce, owner of Commerce Commercials, has somequestions for you as the office manager of his company. For your initialpost, draft a professional email to William Commerce to address thefollowing questions:

Why do we as a company have to estimate and record anticipateduncollectible accounts? Can’t we just record the revenues earned whenthe cash comes in? Why would we even extend credit to customers whodon’t pay their debts? What are these Generally Accepted AccountingPrinciples anyway, and which ones require this recording of revenueswhen earned and expenses when incurred, and the estimating of the baddebts?
Also, we don’t currently have a standard policy for creditmanagement in our company. Please formulate a policy for granting,managing, and collection of accounts receivable for CommerceCommercials. This policy will go into the company handbook and on creditapplications given to new customers seeking the option to makepurchases on credit.