Question

1. Why are internal controls necessary for a business?

2. Why is allowance method preferred over direct write off method?

Answer 1

1- Internal controls are procedures or processes adopted by a business organizations to prevent frauds and ensuring accuracy in financial reporting. It can include activities such as reconciling bank statements and internal audit reviews, which can find out whether the company's funds are being misused and misapporiated by management. it also protect protects organization from financial, strategic, and reputational risks.

2- allowance method is preferred over the direct write off method because the accounts receivable will be reported on the balance sheet with a reduced value by deducting the allowance for doubtful accounts. This means the net amount of the accounts receivable will be lower and closer to the amount that will actually be collected