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Receivables are an important part of business. Companies have to account for uncollectible accounts in order to properly determine cash flow.




Receivables are an important part of business. Companies have to account for uncollectible accounts in order to properly determine cash flow. Inventory and the costing methods used to account for it is another important area of accounting. In this Discussion, you will look at receivables and inventory and how they are reported on the financial statements. This week’s Discussion focuses on Activity 6-2 located on page 248 of your textbook, which reads as follows: The following is an excerpt from a conversation between the office manager, Terry Holland, and the president of Northern Construction Supplies Co., Janet Austel. Northern Construction Supplies sells building supplies to local contractors. Terry: Janet, we’re going to have to do something about these overdue accounts receivable. One-third of our accounts are over 60 days past due, and I’ve had accounts that have stayed open for almost a year! Janet: I didn't realize it was that bad. Any ideas? Terry: Well, we could stop giving credit. Make everyone pay with cash or a credit card. We accept MasterCard and Visa already, but only the walk-in customers use them. Almost all of the contractors put purchases on their bills. Janet: Yes, but we've been allowing credit for years. As far as I know, all of our competitors allow contractors credit. If we stopped giving credit, we’d lose many of our contractors. They’d just go elsewhere. You know, some of these guys run up bills as high as $50,000 or $75,000. There's no way they could put that kind of money on a credit card. Terry: That’s a good point. But we have to do something. Janet: How many of the contractor accounts do you actually end up writing off as uncollectible? Terry: Not many. Almost all eventually pay. It's just that they take so long! Suggest one or more solutions to Northern Construction Supplies Co.'s problem concerning the collection of accounts receivable.


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