Case 1

Gregory Joyce – Pearson PLC

a. Accounts receivable is the money owed by another entity for the use of goods or services that have been delivered or used, but have not been paid for. Other names for accounts receivable are Trade Receivables and Receivables.

b. The difference between accounts receivable and notes receivable is that notes receivable require a promissory note to acknowledge the debt and the note can be used as a legal claim while accounts receivable are merely normal credit purchases. Accounts receivable are generally collected within a few months and are current assets. Notes receivable can either be current or long-term assets.

c. A contra account is a general ledger account that is intended to have the opposite balance of what the normal balance would be for an account. For example a debit balance account would have a credit balance contra account. The two contra accounts that Pearson has are Provision for bad and doubtful debts and Provision for sales returns. The types of activities these accounts capture are good and services that were provided were either not paid for of were returned, basically, the kind of activity that would reduce the asset. The estimates for these accounts could be calculated by a flat percentage or by performance of prior periods.

d. The percentage of sales method takes the revenue from one period and then the company estimates a certain percentage to be uncollectable. The aging of accounts take a percentage of receivables at a certain amount of days outstanding and estimates which percentage would be uncollectable. The aging of accounts would be the most accurate because the estimate is based on accounts receivable and allows to focus in on more aged balances that would ultimately be more likely to be left uncollected.

e. Pearson would extend credit to those customer because at the time of the transaction, there was enough evidence to support the fact that the business would be able to...