Consider the article "Sears: Accounting for Uncollectible Accounts" (Hoyt & Nelson, XXXXXXXXXXNext,...

Question

Consider the article "Sears: Accounting for Uncollectible Accounts" (Hoyt & Nelson, XXXXXXXXXXNext, using outside sources that you may seek and your professional experience, develop and write a 3- to 4-page paper concisely answering the following questions:

(A2.1) What is Sears' management trying to achieve through decisions with respect to financial reporting for uncollectible accounts?

(A2.2) What accounting standards must Sears consider when making its decisions?

(A2.3) Did Sears management meet its financial reporting objectives?

(A2.4) What did Sears' accountants (and management) use in making decisions: knowledge, estimates, or assumptions? Is there any difference between these things?

Your paper should reflect the application of the resources presented this week, as well as knowledge gained from previous weeks' required or optional readings.

a165-pdf-eng-bqufkzi1.pdf

Kalaivani · Accepted Answer

Answer to Question No A2.1
The main objective of Sears management was to identify delinquent accounts earlier and to monitor and/or control over the uncollectible expenses. To achieve this, they showed allowances incorrectly in their financial statements. Even though sears showed credit card receivables are Net value ( I.e., at receivables minus allowances), but they calculated allowances incorrectly. (Lubbe, Modack & Watson, 2014)
Statement of Financial Accounting Standards No. 5 (SFAS 5), clearly mentions that an allowance can be estimated only when below mentioned conditions are met:
1.  It is probable that a loss has been incurred - In this case, their should a probability that, sears will not be able to collect the receivables.
2. The amount of loss can be reasonably be estimated - Sears should be able to calculate the probable loss it might incur due to non-collection of receivables. This estimation can be done in either of ways :
- Income statement approach.
- Balance sheet approach.(Morgan, 2019)
But sears failed to follow the standards set They calculated the allowances based on their impaired accounts, historical charge-off patterns, and management judgments (which is wrong). This haphazard estimation lead sears into further debts.
 Answer to Question No A2.2
When sears is taking decisions with respect to uncollectable accounts, it should make sure they are following Generally Accepted Accounting Principles (GAAP) and Statement of Financial Accounting Standards No. 5 (SFAS 5). GAAP states that accounts receivable should be shown at Net Value. And SFAS 5 says,There are different techniques utilized. One of them are sales or income statement approach. Under this method, it utilizes the sales for the period. And the second method is Balance sheet approach.

Consider the article "Sears: Accounting for Uncollectible Accounts" (Hoyt & Nelson, XXXXXXXXXXNext, using outside sources that you may seek and your professional experience, develop and write a 3- to...

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