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The company has now sharply increased its reserves against doubtful accounts.
Neither did the company add to reserves for doubtful accounts, the former employee said.
Straightening out a lot of doubtful accounts was more than one man's task."
The year also included a first-quarter after-tax charge of $2.7 million for a doubtful account.
Common examples are electricity and water, rentals, depreciation, doubtful accounts, interest, insurance.
The actual amount of uncollectible receivable is written off as an expense from Allowance for doubtful accounts.
Those results also include a $73 million increase in allowances for doubtful accounts and a $126 million writedown of investments and properties.
One was that the company divulged a $2 million charge for "doubtful accounts" from two franchisees; it did not elaborate or say where the franchisees were.
Every dollar added to the allowance for doubtful accounts reduces pretax profits by a dollar, so a reduction serves to increase reported profits.
For instance, its allowance for doubtful accounts in its domestic brokerage group was incorrect; correcting it will result in a $300 million drop in net worth.
The company may also be underestimating how much it is setting aside for doubtful accounts, essentially bills that it expects will not be paid, Mr. Olstein said.
The $300 million that A.I.G. said it did not include in its allowance for doubtful accounts in its domestic brokerage group is also an income statement issue, according to an insurance analyst.
The first method is the allowance method, which establishes a contra-asset account, allowance for doubtful accounts, or bad debt provision, that has the effect of reducing the balance for accounts receivable.
Since not all customer debts will be collected, businesses typically estimate the amount of and then record an allowance for doubtful accounts which appears on the balance sheet as a contra account that offsets total accounts receivable.
The tricks, said Mr. Schilit, the accounting analyst, include using stock warrants rather than cash as payments, since the warrants do not have to be reported as expenses, and making do with small allowances for doubtful accounts and outdated inventory.