1. How does the Sales Returns and Allowances account provide management with a measure of operating efficiency? What problems might be indicated by a high level of returns and allowances?
2. Suppose you are the accountant for a small chain of clothing stores. Up to now, the firm has offered open-account credit to qualified customers but has not allowed them to use bank credit cards. The president of the chain has asked your advice about changing the firm's credit policy. What advantages might there be in eliminating the open-account credit and accepting bank credit cards instead? Do you see any disadvantages?
3. Suppose a manager in your company has suggested that the firm not hire an accountant to advise it on tax matters and to file tax returns. He states that tax matters are merely procedural in nature and that anyone who can read the tax form instructions can do the necessary work. Comment on this idea.
4. During the past year, Cravens Company has had a substantial increase in its losses from uncollectible accounts. Assume that you are the newly hired controller of this firm and that you have been asked to find the reason for the increase. What policies and procedures would you investigate?
5. Why is it usually worthwhile for a business to sell on credit even though it will have some losses from uncollectible accounts?
6. How can a firm's credit policy affect its profitability?
7. How can efficient accounting records help management maintain sound credit and collection policies?
8. Why should management insist that all sales on credit and other transactions affecting the firm's accounts receivable be journalized and posted promptly?