Reference no: EM132212854

Question 1: Preston's request is an ethical accounting practice. Statues show a wide variation between tax planning and tax avoiding. Prestons idea to avoid tax will not be successful. When you are allowed with deduction of uncollected debts in previous years, business is under compulsory obligation to show it as the income of the year in which it is collected.

Question 2: From the financial statements perspective the practice of avoiding entry will seriously effect the true and fair presentation of both profit statement and balance sheet. It leads to understatement of profits and cash balance in the balance sheet. Understatement of financial statements is as sin as overstatement.

Holding the check received from a person whose account had been previously been written off as bad is too dangerous from technical point of view. There are very likely chances of check bounce if you hold the check without encashing for a long time.