B-115351, JUL. 17, 1959

B-115351: Jul 17, 1959

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MORSE: REFERENCE IS MADE TO YOUR LETTER OF MARCH 24. AS REVISED THESE PRINCIPLES ARE: "6. ACCOUNTS ARE MAINTAINED ON AN ACCRUAL BASIS FOR ALL SIGNIFICANT ITEMS EXCEPT FOR THE FOLLOWING: A. THE CUMULATIVE ANNUAL LEAVE EARNED BUT NOT TAKEN OR DISALLOWED IS DETERMINED AT THE CLOSE OF EACH FISCAL YEAR AND THE NET INCREASE OR DECREASE FOR THE PERIOD RECORDED IN THE ACCOUNTS TO DISCLOSE THE ESTIMATED LEAVE LIABILITY. "13. AN ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS WILL BE MADE TO PROVIDE FOR LOSSES THAT MAY RESULT FROM RECEIVABLES THAT MAY PROVE TO BE UNCOLLECTIBLE.'. YOUR LETTER STATED THAT THE ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS IS TO BE BASED ON AN ANALYSIS OF PAST DUE RECEIVABLES. THAT ADJUSTMENTS OF BILLINGS DUE TO ERRORS IN LAW OR FACT WHICH CONSTITUTE THE MAJOR AMOUNTS OF RECEIVABLES WRITTEN OFF ARE TO BE CHARGED TO THE INCOME ACCOUNT ORIGINALLY CREDITED.

B-115351, JUL. 17, 1959

TO MR. CLARENCE G. MORSE:

REFERENCE IS MADE TO YOUR LETTER OF MARCH 24, 1959, TRANSMITTING FOR REVIEW AND APPROVAL TWO CHANGES TO THE ACCOUNTING PRINCIPLES AND STANDARDS WHICH UNDERLIE THE ACCOUNTING SYSTEM OF THE MARITIME ADMINISTRATION AND THE FEDERAL MARITIME BOARD PREVIOUSLY APPROVED IN OUR LETTER OF MARCH 2, 1955 (B-115351).

THE TWO CHANGES TO WHICH YOU REFER RELATE TO ACCOUNTING PRINCIPLES 6.A. AND 13, THE LATTER REPLACING ACCOUNTING PRINCIPLE 6.C. AS REVISED THESE PRINCIPLES ARE:

"6. ACCOUNTS ARE MAINTAINED ON AN ACCRUAL BASIS FOR ALL SIGNIFICANT ITEMS EXCEPT FOR THE FOLLOWING:

A. THE ACCOUNTS DO NOT PROVIDE FOR ACCRUAL OF ANNUAL LEAVE DURING THE FISCAL YEAR; HOWEVER, THE CUMULATIVE ANNUAL LEAVE EARNED BUT NOT TAKEN OR DISALLOWED IS DETERMINED AT THE CLOSE OF EACH FISCAL YEAR AND THE NET INCREASE OR DECREASE FOR THE PERIOD RECORDED IN THE ACCOUNTS TO DISCLOSE THE ESTIMATED LEAVE LIABILITY.

"13. AN ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS WILL BE MADE TO PROVIDE FOR LOSSES THAT MAY RESULT FROM RECEIVABLES THAT MAY PROVE TO BE UNCOLLECTIBLE.'

YOUR LETTER STATED THAT THE ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS IS TO BE BASED ON AN ANALYSIS OF PAST DUE RECEIVABLES; AND THAT ADJUSTMENTS OF BILLINGS DUE TO ERRORS IN LAW OR FACT WHICH CONSTITUTE THE MAJOR AMOUNTS OF RECEIVABLES WRITTEN OFF ARE TO BE CHARGED TO THE INCOME ACCOUNT ORIGINALLY CREDITED, RATHER THAN TO THE ALLOWANCE. REPRESENTATIVES OF YOUR OFFICE HAVE INFORMED US THAT THIS BASIS FOR DETERMINING THE ALLOWANCE FOR BAD DEBTS HAS BEEN ADOPTED BECAUSE THE AMOUNTS OF ADJUSTMENTS FOR ERRORS WERE NOT PREDICTABLE. THEY AGREED, HOWEVER, THAT TO THE EXTENT SUCH ADJUSTMENTS MAY BECOME REASONABLY PREDICTABLE IN THE FUTURE, APPROPRIATE ALLOWANCE WILL BE MADE FOR THEM BY CHARGES TO CURRENT EXPENSES.

BASED ON THE ABOVE UNDERSTANDINGS, THE PRINCIPLES, AS OUTLINED IN YOUR LETTER OF MARCH 24, 1959, ARE APPROVED.