Acc 201 Principles of Financial Accounting

Review ATC 5-4 of Chapter 5 and post your thoughts on the question regarding the issues and procedures that a business must consider when dealing with credit sales and collections.

Summarize your recommendations in memo form.

Paul Smith is opening a plumbing supply store in University City. He plans to sell plumbing parts and material to both wholesale and retail customers. Since contractors (wholesaler customers) prefer to buy parts and materials and pay at the end of the month, Paul expects he will have to offer charge accounts. He plans to offer charge sales to the wholesale customers only and to require retail customers to pay with either cash or credit cards. Paul wonders what to expenses his business would incur relative to the charge sales and credit cards.

Required

a.      What issues will Paul need to consider if he allows wholesale customers to buy plumbing supplies on account?

b.      Write a memo to Paul Smith outlining the potential cost of accepting charge customers. Discuss the difference between the allowance method for uncollectible accounts and the direct write – off method. Also discuss the cost of accepting credit cards.