Nebraska bookshop specializes in used, rare, and out-of-print books. The store h

Question

Nebraska bookshop specializes in used, rare, and out-of-print books. The store has a large base of repeat customers who purchase books on 30-day accounts. At 15 days overdue, each customer gets a phone call from Nebraska requesting payment. Nebraska has experienced a high success rate with this collection effort. Nebraska’s CPA is preparing year-end financial statements, and the company has asked him for his estimate of uncollectible accounts. Nebraska has a balance of $65,000 in the accounts receivable account at the end of the year. The CPA has analyzed the company’s uncollectible accounts using an aging of the accounts receivable. He estimates that only 2.5% of his accounts receivable balance will not be collected. The allowance for doubtful accounts has a credit balance of $210 in the trial balance.

Indicate three or four measures Nebraska can implement to minimize his write-offs and explain why investors would be concerned about write-offs.

Explanation / Answer

1. can call after 10days instead of current practice or weekly calls to remind the customers, to pay the amount due.

2. analyse the customers who are not prompt in paying the amount due.

3. Take note of the defaulting customers and credit worthiness of each customer, so that the amount of credit that can be alloted to each customers can be specified.

4. can reduce the time allowed to some customers on the basis of their credit worthiness.

The investors will be concerned about the write-offs as it reduces the profit, in a sense it a kind of cost which can be reduced or minimised with proper control and management of the Accounts Receivables.

Large amounts of write-offs regularly and delay in repayments shows the lack of proper management or negligence on the part of management in proper collection of Accounts Receivables.

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