Account Recievables

Accounts Receivable

The amounts due from customers but not yet

collected. When goods are shipped to customers

before payment or collection, an account receivable

is created whereby customers are generally given

an agreed-upon time period in which to pay—

normally 30, 60 or 90 days.

In this example, the total amount due from customers

is $158,375,000. Experience shows, however, that

some customers fail to pay their bills, which means

it is unlikely that the entire balance recorded as due

and receivable will be collected. Therefore, in order

to show the accounts receivable balance as a figure

representing expected receipts, an allowance for

doubtful accounts is deducted from the total

amount recorded. In this instance, the allowance

for doubtful accounts is $2,375,000.

Inventories

A manufacturing company’s inventory consists

of quantities of physical products assembled from

various materials, which fall into one of the three

following categories:

Raw materials—items to be used in making a

product (e.g., the fabric used in making a blouse).

Work-in-process—partially completed goods in

the process of manufacture (e.g., pieces of fabric

such as a sleeve and cuff sewn together during the

process of making a blouse).

Finished goods—completed items ready for their

intended use.

The amount of each of these types of inventories is

generally disclosed either on the face of the balance

sheet or in the notes. For ABC, inventory represents

the cost of items on hand that were purchased

and/or manufactured for sale to customers. To

provide a conservative figure, inventories are valued

using the lower of cost or market rule. For balancesheet

purposes, the lower of the two will usually

be cost; however, if the market price is lower due

to deterioration, obsolescence, declining prices or

other factors that are expected to result in the selling

or disposing of inventories below cost, the market

price is used.

The value of finished...