The sale and purchase of goods and services
typically involve the exchange of goods and
services for money. The point at which money
changes hands, however, can vary greatly de-
pending on the circumstances. In the simplest
arrangement, the purchaser makes payment
and receives goods at the time of the transac-
tion. For example, if you purchased a grande
latte from Starbucks Corporation, you would
pay for and receive the beverage at the same
time. Starbucks would not need to rely on you
for future payment, since you are making pay-
ment at the same time you receive the latte.
At other times, however, the transaction
elements do not occur at the same time; that is,
one party delays in either providing the cash or
the product. This is most common when com-
panies do business with each other. Unlike the
individual consumer purchasing coffee, a per-
son purchasing for a business does not have
control of the business checkbook. Rather, the
supplier will invoice the customer for payment
at a later time. This delay in payment facilitates
internal control by separating the purchase
decision from payment. For example, Starbucks
will invoice local businesses for providing on-
premises coffee service. Local businesses will
pay for the coffee service after delivery accord-
ing to the terms of the invoice. This gives local
businesses time to process the invoice. Starbucks
trusts the local business to pay the invoice be-
cause of its successful history as business part-
ners, coupled with its financial strength. Indeed,
as an individual you might be able to move from
cash-based transactions to transactions on a per-
sonal account with some businesses. For exam-
ple, a copy shop might agree to an account
relationship after establishing trust from a his-
tory of cash-basis transactions.
Starbucks has built its business on trust—
trust in its employees, suppliers, and customers.
As a result, Starbucks has been voted one of
the most admired companies in the United
States.
Trust is a large part of business. Trust al-
lows companies to avoid simultaneous cash
transactions and use trade credit. Trade credit
gives rise to accounts receivable for the seller,
which is often a significant current asset for
many businesses. In this chapter, we will dis-
cuss how to account for, disclose, manage, and
analyze accounts and notes receivable.Starbucks Corporation
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