Accounting for Changes in Value The value of many temporary investment securities fluctuates con-stantly. For example, the value of shares of stock that are publicly traded can be found in most major newspapers on a daily basis. Changes in the value of securities are caused by such factors as changes in the economy, earnings reports from corporations, and world conditions. These constantly changing values have caused some accountants and financial statement users to advocate the recognition of gains and losses in temporary investments as they occur rather than as the securities are sold. Most accountants agree that fluctuations in the value of CDs, treasury bills, and bonds should not be recorded until these securities are sold. However, fluctuations in the market values of stock that reduce the value of the temporary investment below its original cost are recorded in the accounting records prior to the preparation of financial statements. To illustrate, assume that the Kemp Company acquired a temporary investment in the common stock of the Pippen Corporation on December 1, 1992, for a total price of $13,700. On December 31, 1992, the value of the Pippen stock had fallen to $13,400. On this date, Kemp records the following adjusting general journal entry: The loss account appears on Kemp's income statement, and the Allowance for Decline in Temporary Investments appears as a contra account on Kemp's balance sheet and is offset against the related temporary investment account in the following manner: Receivables The sale of goods and services to customers is often made on credit. Receivables are amounts due from customers from the sale of the company's product or the performance of services. There are two main types of receivables, accounts receivable and notes receivable. These two types of receivables are discussed in the following sections. Accounts Receivable Accounts receivable are liquid current assets that arise from the sale of goods and services to customers on open accounts. Businesses sell on credit in order to increase sales; however, credit sales generally result in a certain amount of bad debt losses due to nonpayment by customers. A company considering whether or not to sell on credit must estimate both the additional profit expected from credit sales and the additional expenses associated with extending credit. Most companies that extend credit to customers establish a credit department. This department has the responsibility for examining the credit history of the customer and approving or disapproving the extension of credit. Reporting and Measurement Issue For Accounts Receivable The major reporting and measurement issue associated with accounts receivable is determining the amount of cash that will ultimately be collected on the outstanding accounts. This is an important issue because no matter how diligent a company is in examining the credit history of customers, bad debts frequently occur. In fact, some individuals actually attempt to defraud companies through a practice termed credit swindling as discussed in the practical insight.