cash during normal operations. The receivables are presented on Starbucks’balance
sheet, as shown below.^3368 Chapter 8 Receivables
Assets (in millions) Oct. 3, 2004 Sept. 28, 2003
Current assets:
Cash and cash equivalents $ 299.1 $200.9
Marketable securities 353.8 149.1
Accounts receivable, net of allowances 140.2 114.4
of $2.2 and $4.8, respectively
Inventories 422.7 342.9
Prepaid expenses and other current assets 135.0 102.6
Total current assets $1,350.8 $909.9Starbucks reports net accounts receivable of $140.2 and $114.5. The allowances for
doubtful accounts of $2.2 and $4.8 are subtracted from the total accounts receivable to
arrive at the net receivables. Alternatively, the allowances for each year could be
shown in a note to the financial statements.
Other disclosures related to receivables are presented either on the face of the fi-
nancial statements or in the accompanying notes.^4 Such disclosures include the mar-
ket (fair) value of the receivables if significantly different from the reported value. In
addition, if unusual credit risks exist within the receivables, the nature of the risks
should be disclosed. For example, if the majority of the receivables are due from one
customer or are due from customers located in one area of the country or one indus-
try, these facts should be disclosed.
Starbucks did not report any unusual credit risks related to its receivables.
However, the following credit risk disclosure appeared in the 2004 financial statements
ofDeere & Company:Trade accounts and notes receivable have significant concentrations of credit risk in
the agricultural, commercial and consumer, and construction and forestry sectors. The
portion of credit receivables related to the agricultural business was 57%, that related
to commercial and consumer business was 25%, and that related to the construction
and forestry business was 18%. On a geographic basis, there is not a disproportionate
concentration of credit risk in any area.MANAGING ACCOUNTS RECEIVABLE
Businesses grant credit in order to earn additional profits from customers who would
otherwise not purchase the company’s goods or services. Thus, the overall objective of
managing accounts receivable is to help the company earn profits. The basic steps in
managing accounts receivable include the following:- Screening customers
- Determining credit terms
- Monitoring collections
Describe the principles
of managing accounts
receivable.8
3 Adapted from Starbucks Corporation amended 10-K for the year ended October 3, 2004.
4 Statement of Financial Accounting Standards No. 105, “Disclosures of Information about Financial Instru-
ments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk,” and
No. 107, “Disclosures about Fair Value of Financial Instruments” (Norwalk, CT: Financial Accounting
Standards Board).International Perspective
Under International
Accounting Standards,
current assets are shown in
reverse order of liquidity on
the balance sheet. As a
result, inventories are typi-
cally one of the first assets
displayed in the Current
Assets section, and cash
and cash equivalents is
typically the last item
displayed.