Sears Inc Case Study

What is Sears’ management trying to achieve through decisions with respect to financial reporting for uncollectible accounts? Management’s objective was to find alternatives to better manage the way credit card charges were collected. The new system that was being used allowed the company to charge off customers’ accounts that neglected to make a payment within eight billing cycles. The intention of the new system was to assist the company in better managing their collection efforts giving them the ability to identify accounts that could or would become delinquent earlier on. The previous system did not catch the delinquent accounts as fast as the new system. With the original system, accounts considered to be uncollectible were automatically charged-off when the balance that was past due was eight times the scheduled minimum monthly payment. Before the new system the company heavily marketed the new Sears Card. In 1995, the company responded to the rising charge-offs by increasing interest rates to 21 percent. Meanwhile, the company lowered the minimum monthly payment that customers were required to pay. Sears Company, by 1997, was listed as a creditor in one-third of personal bankruptcies in the United States. Through the end of 1997, Sears’ average credit card balance was over three times that amount of J.C. Penney Company’s, not to mention the company had delinquencies that exceeded the industry average by two percentage points (Nelson & Hoyt, 2000). In accordance with financial reporting …show more content…
The accounting standards that Sears should use for decision making are the Generally Accepted Accounting Principles (GAAP). According to GAAP, accounts receivable must be reported on the balance sheet at net realizable value. This means the item should be listed at the amount the company can reasonable assure can be collected from the consumer.
Did Sears’ management meet its financial reporting