Accounts receivable
(发布日期：2006/5/22 11:30:36)
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evaluating the quality accounts receivable: collecting accounts
receivable on time is
important; it spells the success or candidate for a company's credit
and collection policies. a past-due receivable is a candidate for
write-off as a credit loss. to help us judge how good a job a
company is doing in granting credit and collecting its receivables,
we compute the ratio of net sales to average receivables. this
accounts receivable turnover rate tells us how many times the
company's average investment in receivables was converted into cash
during the year. the ratio is computed by dividing annual net sales
by average accounts receivable.
fox example, recent financial statement of 3m(minnesota mining and
manufacturing company ) show net sales of $9.4 billion. receivables
were $1.6 billion at the beginning of the year and $1.4 billion at
the end of the year. adding these two amounts and dividing the total
by 2 gives us average receivables; the result indicates an accounts
receivable turnover rate the more liquid the company's receivables.
another step that will help us judge the liquidity of a company's
accounts receivable is to convert the accounts receivable turnover
rate to the number of days ( on average ) required for the company
to collect its accounts receivable. this is a simple calculation :
divide the number of days in the year by the turnover rate.
continuing our 3m example, divide 365 days by turnover rate of 6.3.
this calculation tells us that on average, 3 m waited approximately
58 days make collection of a sale on credit.
management closed monitors these ratios in evaluating the
company's policies for extending credit to customers and the
effectiveness of its collection procedures. short-term creditors,
such as factors, banks, and merchandise suppliers, also use these
ratios to evaluate a company's ability to generate the cash
necessary to pay it short-term liabilities.
in the annual audit of a company by a cpa firm, the independent
auditors will verify receivables by communicating directly with the
people who owe the money. this confirmation process is designed to
provide evidence that the customers and other debtors actually
exist, and acknowledge their in debtedness. the cpa firm also may
verify the credit rating of major debtors.
concentratins of credit risk : assume that a business operates a
single retail store in a town in which the major employer is a steel
mill. what would happen to the collectibility of the store's
accounts receivable if the steel mill were to close, leaving most of
the store's customers unemployed? this situation illustrates what
accountants call a concentration of credit risk, because many of the
store's credit customers can be affected in a similar manner by
certain changes in economic conditions. concentrations of credit
risk occur if a significant portion of a company's receivables are
due from a few major customer, or from customers operation in the
same industry or geographic region.
the fasb requires companies to disclose all significant
concentrations of credit risk in the notes accompanying their
financial statement. the basic purpose of these disclosures is to
assist users of the financial statements in evaluating the extent of
the company's vulnerability to credit losses stemming from changes
in specific economic conditions.
notes receivable and interest charges: accounts receivable usually
do not bear interest. when interest will be charged, creditors
usually require the debtor to sign a formal promissory. accounting
for notes receivable and interest charges is discussed in
supplemental topic b at the end of this chapter.
adjusting marketable securities to market value: at the end of
each accounting period, the balance in the marketable securities
account is adjusted to its current market value. hence this
adjustment is described by the phrase, “mark-to-market is an
interesting concept, because it represents a departure from the cost
principle. at present, marketable securities are the only assets
likely to appear in the balance sheet at an amount above cost.
the mark-to-market adjustment is easy to make, and involves only
two accounts: (1) the marketable securities controlling account, and
(2) a special owner's equity account, entitled unrealized holding
gain (or loss) on investments.&nb
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