Analyzing and Interpreting Receivables and Related Ratios Following is the curre

Question

Analyzing and Interpreting Receivables and Related Ratios

Following is the current asset section from Intuit Inc.’s balance sheet.

Total revenues were $4,171 million ($1,515 million in product sales and $2,656 million in service revenues and other) in 2013.

Required

a. What are Intuit’s gross accounts receivable at the end of 2012 and 2013?

b. For both 2013 and 2012, compute the ratio of the allowance for uncollectible accounts to gross receivables. What trend do you observe?

c. Compute the receivables turnover ratio and the average collection period for 2013 based on gross receivables computed in part a. Does the collection period (days sales in receivables) appear reasonable given Intuit’s lines of business (Intuit’s products include QuickBooks, TurboTax and Quicken, which it sells to consumers and small businesses)? Explain.

d. Is the percentage of Intuit’s allowance for uncollectable accounts to gross accounts receivable consistent with what you expect for Intuit’s line of business? Explain.

e. Intuit discloses the following table related to its allowance for uncollectable accounts from its 10-K. Comment on the charge in the allowance during 2011 through 2013.

31-Jul 2013 2012 Current Assets: Cash and cash equivalents Investments Accountable receivable, net of allowances for $ 1,009 393 $652 351 $ 130$142 $62 $53 $166$183 $ 98 65 doubtful accounts of $38 and $46 Income taxes receivable Deferred income taxes Prepaid expenses and other current assets Current assets of discounted operations 46 $ 2,161 1,233 $235 $ S 2,396 $ 1,523 Current assets before funds held for customers Funds held for customers Total current assets

Explanation / Answer

a)Gross receivables = Net +Allowances

2012 = 142 +46 = 188

2013 = 130+ 38 = 168

b)Ratio of allowance to gross receivable :

2012 = 46/188 =.2447 or 24.47%

2013 = 38/168 = .2262 or 22.62%

The ratio of allowance over 2012 is decreased in year 2013

c)Receivable turnover ratio =Net credit sale/Average accounts receivable

                                      = 4171 /(188+168)/2

                                    = 4171 / 178

                                     = 23.43

collection period= Average account receivable /(Credit sales/365)

                       = 178/(4171/365)

                       = 178/11.43

                        = 15.57 days

yes, The collection period is reasonable given intuit line of business.because the intuit product are not expensive for customers to default on,

d)yes, It is reasonable because due to cheaper rates, Intuit's customers do not need to buy products on credit.so allowance is reasonable .

e)The allowance for uncollectable accounts is increased by 26 (46-20)from year 2011 to year 2012 .resulting in additional charge to expense.

However it is again decrease by 8(46-38 )from year 2012 to year 2013.

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