(solution) Renewal commissions were commissions earned on policies renewed

(solution) Renewal commissions were commissions earned on policies renewed

Renewal commissions were commissions earned on policies renewed in thesecond year and thereafter, and were substantially smaller than first-year commissions. BISYS receivedmonthly checks from carriers with statements indicating the policies for which renewalcommissions were being paid. Rather than recording these commissions on a cash basis aspayments were received from carriers, BISYS estimated its renewal commissions and recorded acorresponding receivable. This estimate was then adjusted quarterly, based on historical net cashreceipts.

2. Is it appropriate to record the second year commissions using estimates rather than cash receipts?