The Balance Sheet has accounts where the accountant must make estimates. Some situations in which estimates affect amounts reported in the balance sheet include:
- Allowance for doubtful accounts.
- Depreciable lives and estimated salvage values for plant and equipment.
- Warranty returns.
- Determining the amount of revenues that should be recorded as unearned.
Discuss when estimates are required, and how the estimate can impact the usefulness of the information.
For your first post this week, select one of the four areas above and give a summary of how the estimate can impact the usefulness of the balance sheet.
For your reply post this week, describe and discuss estimates in terms of faithful representation and verifiability.