Pearson Plc

a) An account receivable is a claim a company holds against customers and others for money, goods, or services. Other names that an account receivable can go by are current (short term) or noncurrent (long term) which is determined by the date which the receivable is due.

b) Accounts receivable are oral agreements with the purchasers to pay for goods or services sold and are normally collected within 30-60 days. Notes receivable are written agreements between the two parties to pay a certain sum of money on a specified date.

c) A contra-account is one that offsets the balance of a related and corresponding account. The two contra-accounts associated with Pearson’s trade receivables are the Provision for bad and doubtful accounts and Provision for sales returns. Activities included in the bad and doubtful accounts contra-account would be the bad debt expenses for the year and write off amount for the year. Activities included in the sales returns contra-account would be return activity based on customer’s actual returns. Factors that managers might consider when deciding how to estimate the balance in the contra-accounts would be historical information related to sales and bad debts. Managers should look at this on a per customer basis to gain an accurate estimate of historical information for these contra-accounts.

d) The percentage-of-sales procedure is considered an income statement approach where management estimates what percentage of credit sales will be uncollectible based on history. Managers need historical sales and payment information for their customers for this approach. The aging-of-accounts procedure is considered a balance sheet approach where management determines an amount considered uncollectible and categorizes the receivables by age and takes a percentage from each category. Managers need historical information related to the timing of payments and historical write off information. The percentage-of-sales approach...