A. What is an account receivable? What other names does it go by?
Accounts receivable are amounts owed by customers on account. They result from the sale of goods and services on credit. These receivables are generally expected to be collected within 30 to 60 days. They are typically the most significant type of claim held by a company. Accounts receivable and notes receivable resulting from sales are also known as trade receivables. Accounts receivable resulting from sales are referred to as trade receivables in Alcatel's financial statements.
B. How do accounts receivable differ from notes receivable?
Notes receivable represent claims for which formal instruments of credit are issued as evidence of debt. A credit instrument
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For most firms the optimal amount of uncollectibles is not zero. For Alcatel to have no uncollectible accounts they would have to use a very strict credit policy and would most likely not be able to sell to as many as customers. Enforcing this policy would be very costly and they would likely eliminate many customers who would pay their bills but would not be able to pass a credit check. On the other hand if Alcatel's credit policy is too loose they risk having too many customers who will not pay or will pay late. Alcatel was able to manage some of these risks and generate cash immediately by selling a portion of their receivables to banks and financial firms. Other steps that can be taken to manage the risk of uncollectible accounts include: requiring risky customers to provide letters of credit or bank guarantees, requiring particularly risky customers to pay cash on delivery, asking potential customers for references from banks and suppliers to determine their payment history, and continually checking the financial health of regular customers.
E. Process
Allowance For Doubtful Accounts (Trade Receivable)
4) Write-offs 115 928 Dec. 31, 2001 279 3) Bad Debt
1,092 Dec. 31, 2002 Trade Receivables - Gross
Dec. 31, 2001 9,033 19,657 2) Collections
1) Sales 16,547 115 4)
First, we conducted risk-based approach with data analysis techniques-unusual invoice and unusual comments, to identify the unusual items that are in the accounts receivable detailed listing, and tested whether there are invoices outside the expected range of invoice number and “special” comments associated with accounts receivable items. As a result, there were no invoice number out of range, and Invoice 1000919, 1000845, 1001097 are “special” comments associated with accounts receivable.
Revenue recognition is one of the top causes for financial statement restatements. In addition, revenue recognition is an area commonly questioned by the Securities and Exchange Commission (SEC) staff in their review of public filings and resultant comment letter process. Furthermore, revenue recognition is often prey to financial fraud.
In order to confirm the accounts receivable balances, I decided to use positive confirmations since this was my first time auditing the company and the collateral for the loan would be the receivables. The confirmations helped to verify the accuracy and existence of the accounts. I also calculated the Receivables Turnover Ratio in order to better evaluate the overall success of collection on accounts. The sample size that I chose was determined by the factors of tolerable misstatement, inherent risk, control risk, achieved detection risk
Provided Case 09-3, we, Group 7 have dutifully researched the topic, using resources at our disposal to formulate a consistent, clear and legal response. The following submission outlines the case, our conclusions with supporting evidence and the accounting issues present in the subject.
According to the fact of this case, Parent Co. (Parent) wholly owns Poor Son Co. (Poor Son) as a legal subsidiary, and both of them all nonpublic companies. However, in January 2007 Poor Son filed a voluntary bankruptcy under Chapter 11 of the U.S. bankruptcy code because of its inability of meet obligations as they became due. Then, Parent claimed the loss of control of Poor Son and deconsolidated Poor Son from its financial statement. Through the bidding process in May 2009, Poor Son and OtherCo, the winning sponsor, filed a joint plan of reorganization to the bankruptcy court, but the plan was rescinded by OtherCo later due to significant market value shrink of Poor Son. After that, the
The interview with Colin Smith, from Office Products Depot, meant I was able to identify the accounts receivable subsystem they used and their accounts receivable management. I focussed on their policies for the offering and checking of credit, managing credit levels, charging the credit customers, receiving payment from credit customers and the general management of credit customers. I will be using the information from the interview with Colin as well as information from fictitious accounts receivable to explain their policies.
Due to the information, 20 acres of land equal 80 sheep according to the exchange rate of last year, a one-room cabin equal 3 acres of land and equal 12 sheep finally, a plow equals 2 goat and equal 2/3 sheep according to last year’s exchange rate and 2 carts which were traded with a poor acre of land equals 8 sheep plus 400 sheep. So Deyonne’s total assets are 500(2/3) sheep. Deyonne’s liabilities and assets deduction are 35 sheep plus 3 sheep, which will come to 38 sheep,
J reflects department store chain. This industry is a retail business; therefore, there is a large amount of inventories. This industry also has high accounts receivable because usually customers pay with credit cards which are billed at the end of the month. However, sometimes, customers forget to pay their bills on time, and the bills are brought to next month. Therefore, the collection period is approximately 2 months.
Accounts receivable (A/R) relates to the revenue owed for services provided. This could include something simple as a regular health check-up or something more serious as a surgery. When a patient
Account receivable is all of the patients records coming together to create account receivable, the money that is owed to a business by a customer in exchange for goods or services that have already been provided. In medical offices, AR refers to amounts owed by patients and their third-party payers (such as Medicare and insurance companies) for services provided to patients. AR is expressed as the total dollars owed by all patients on a specific date. Each time a service is provided and a bill is issued, the AR increases. Each time a payment is received, the AR decreases. A lower AR is better than a higher AR.
Require officers who have borrowed money from the company to repay the amounts owed at December 31. This would convert into cash the “notes receivable from officers,” which now appear in the balance sheet as noncurrent assets. The loans could be renewed immediately after year-end.
Account receivables accounts for purchases which consumers have not yet aid for. This takes cares of any losses that the firm might incur due to allowing credit to certain clients. Bad debts are recorded in the income statement and they represent the des which the company doesn’t expect to be paid back. The account
Accounts receivable turnover is the second method by which a company’s trade receivables’ liquidity can be evaluated (Gibson, 2011). Žager et al. (2012) noted turnover ratios should be as high as possible as this indicates a firm’s ability to convert its assets more often. 3M’s accounts receivable turnover for years 2007 and 2008 is shown in Exhibit 2. In 2007, 3M turned its accounts receivable over 7.12 times and 7.70 times in 2008. This calculates into a turnover of its accounts receivable every 51.28 days in 2007 and 47.38 days in 2008. The increase in accounts receivable turnover times per year (decrease in number of days to turnover accounts receivables) from 2007 to 2008 is a positive trend for 3M. It suggests, along with the prior calculation, the management of receivables is likely to be improving in efficiency.
As for Accounts Receivable we need to take a look at the ratio called Days Sales in Receivables which is 365 / Receivables Turnover. This is also given to us as 157 days which means that it will take 2.32 times for the company to cover its accounts receivable and
Receivables—liquid form of asset Liquidity can be defined as financial solvency of the company it can be expressed as the liquidity of asset as well as corporate liquidity or solvency (Kallberg and Parkinson 1993, quoted in Ivanovic 1997, 125). On Stock market liquidity can be measured by observing the gap between the buying and selling price (Bogdan, Baresa, and Ivanovic, 2010, 45). Some authors (Uyemura; Van Deventer) define liquidity as ability to collect funds at no extra costs within a reasonable time (1993, 234). For continuous and normal business activities (lifetime) of each business entity most important is ability to timely settle obligations when they come for final payment. Receivable is liquid if it can be sold in short time without significant loss. In assessment of liquidity of individual receivable it is very important probability that it can be converted into cash, probability that it can be matched price and assumption that these two probabilities will not change at the market. Most liquid form of asset of a business entity represents funds which are ready for use in different purposes, after money—most liquid form of asset owned by