Columbus Business Daily

ACCOUNTING Help please?

THe following info is taken from the 2007 annual report to shareholders of HP Co.: for fiscal 2007: Provision for doubtful accounts (recognized bad debt expenses) $47 million at fiscal year-end 2007: AR, net 15927 million AR, gross 16193 million for fiscal 2006: Provision for doubtful accounts (recognized bad debt expenses) $4 million at fiscal year-end 2006: AR, net 13313 million AR, gross 13573 million + Allowance, end of 2007 = A/R gross 2007 minus A/R net 2007 Allowance, end of 2007 = 266 million + Percentage of year-end receivables = Allowance, end of 2006 divided by A/R, gross 2006 Percentage of year-end receivables = (13573 million minus 13313 million) divided by 13573 million Percentage = 1.92 % for 2007: Percentage = (16193million minus 15927 million) divided by 16193 million Percentage = 1.64% I have 2 questions: 1) How might a company with receivables like HP be able to manage earnings in applying GAAP? 2) Is there any evidence in HP's disclosures above that are consistent with earnings management? please help...don't know how to answer these 2 questions..help me please thanks

Public Comments

1. If we raise the estimate of bad debts, then we show lower earnings. If the allowance is high, it can be like a balloon that we can use to make larger (smaller earnings) or smaller (take the air out of the balloon by lowering the estimate. You cannot tell if they are managing unless you know what the actual estimate should be which is very difficult until 2 years from know when we say how collections went