LIFO and Statistical Sampling---A Case Study
A growing number of case studies, describing the increasing number of applications of statistical sampling methods to accounting problems, have appeared in accounting literature. A substantial number, although not all, of these case studies have tended to emphasize the statistical aspects of the particular problem being described, at the neglect of accounting considerations. This is understandable in the sense that statistical techniques are relatively new to the accounting profession and new techniques, rather than the old, require exposition. However, the fruitful use of statistics in accounting requires full consideration of both statistical and accounting aspects of any particular problem. With this point of view, the following case study describing the statistical and accounting problems encountered in an adoption of the LIFO method of valuing inventory is presented.
Statistical Sampling Techniques in the Aging of Accounts Receivable in a Department Store
In the economic systems of most industrial countries the bulk of the sales made by business concerns of any significant size is in the form of credit sales. In large retail outlets such as department stores, credit sales become even more important and the number of accounts receivable becomes exceedingly large. Under such conditions the proper credit policy to be followed becomes a management problem of the first magnitude. In addition to the proper credit policy it is necessary for management to determine the proper reserve for uncollectibles. One of the traditional methods of generating information on these questions has been the aging of the accounts receivable. It is precisely on management problems of this kind, where good information about large masses of data must be derived, that modern statistical sampling techniques can play an important role. When the data for decision-making purposes are the result of a statistical sample, management has an objective measure of the quality of the data on which the decision may be made. The specific objective of this paper is to demonstrate the usefulness of statistical sampling in the aging of receivables for the purpose of setting the allowance for uncollectibles.
Sampling theory of surveys, with applications
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