Intermediate Accounting, Thirteenth Edition

Chapter 7. CASH AND RECEIVABLES

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

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No-Tell Nortel

Nortel announced that its net income for 2003 was really half what it originally reported. In addition, the company had understated net income for 2002. How could this happen? One reason: It appears that Nortel set up "cookie jar" reserves, using the allowance for doubtful accounts as the cookie jar. As the following chart shows, in 2002 Nortel overestimated the amount of bad debt expense (with a sizable allowance for doubtful accounts). Then, in 2003 Nortel slashed the amount of bad ...