Alcatel Accounting Case

Topics: Accounts receivable, Balance sheet, Current asset Pages: 4 (985 words) Published: November 25, 2007
A.What is an account receivable? What other names does it go by?

Accounts receivable are amounts owed by customers on account. They result from the sale of goods and services on credit. These receivables are generally expected to be collected within 30 to 60 days. They are typically the most significant type of claim held by a company. Accounts receivable and notes receivable resulting from sales are also known as trade receivables. Accounts receivable resulting from sales are referred to as trade receivables in Alcatel's financial statements.

B.How do accounts receivable differ from notes receivable?

Notes receivable represent claims for which formal instruments of credit are issued as evidence of debt. A credit instrument normally requires a debtor to pay interest and extends for time periods of 60 to 90 days or longer. Notes receivable differ from accounts receivable due to the fact that notes receivable are secured by promissory notes and not through accounts. Notes receivable also requires the debtor to pay interest. The collection period for notes receivable generally extends for 60 to 90 days or longer, whereas accounts receivable are generally expected to be collected in 30 to 60 days .

C.Alcatel's balance sheet reports a balance for trade receivables and related accounts, net. What are the trade receivables net of?

Trade receivables are stated at the cash (net) realizable value on the balance sheet. Gross trade receivables are therefore reduced by the estimated uncollectible receivables (referred to as allowance for doubtful accounts) through the allowance method before being presented on the balance sheet.

D.If Alcatel anticipates that some accounts are uncollectible, why did the company extend credit to those customers in the first place? Discuss the risks that must be managed with respect to accounts receivable and vendor financing?

Alcatel, like others in the telecommunications industry, offered products to many...
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