Part 2 book “Horngren’s financial & managerial accounting - The financial chapters” has contents: Receivables, plant assets, natural resources, and intangibles, investments, current liabilities and payroll, long-term liabilities, stockholders' equity, the statement of cash flows, the statement of cash flows. | 8 Receivables Should Credit Be Extended? J ames Hulsey works for a large department store as a credit manager. His main responsibility is managing all credit sales that generate accounts receivable. James must evaluate each customer’s request for credit and determine which customers are allowed to purchase goods on credit. He does this by reviewing the customer’s credit history and credit score. James has an important decision to make. He understands that granting credit increases the sales of the department store, but it also has its disadvantages. One of those disadvantages is that the department store has to wait to receive cash. But, for James, the biggest disadvantage—and the most frustrating part of his job—is when customers don’t pay. When this happens, the department store suffers a loss because it will never collect the cash associated with the sale. The department store must have a way to take the accounts of customers who will never make payment off the books; this is called a write-off. In addition, James must also help the department store estimate the amount of receivables that will be uncollectible. It’s important that the department store have a good idea of the amount of cash that will actually be collected on its receivables so it can estimate future cash flows. How Are Receivables Accounted For? In this chapter, we determine how companies account for receivables. Receivables represent the right to receive cash in the future from a current transaction. We begin by looking at how companies such as Sears Holdings Corporation (the parent company of Kmart Holding Corporation and Sears, Roebuck and Co.) record accounts receivable, including when customers don’t make the required payments. Then we review notes receivable, which usually extend over a longer term than accounts receivable and typically involve interest. We finish the chapter by looking at how companies (and investors) can use financial ratios to evaluate a .
