Unfaithful Representation: Understating Accounts Receivable In The Name Of Conservatism

This research empirically examines the relationship between conservatism in accounting and the allowance for doubtful accounts. A sample of companies’ financial data related to the allowance for doubtful accounts and bad debt expense in the chemical and allied products manufacturers industry, SIC 28, for the period from 2005 through 2017 was obtained. The results of analysis of this data indicate that the allowance for doubtful accounts is overstated in these firms and has become more overstated since 2004. This research is important as few have researched the allowance for doubtful accounts, and that research has not considered the allowance for doubtful accounts as a percentage of the accounts receivable balance