Stropes Corporation is a recently formed business selling the “World’s Best Doormat.” The corporation is selling doormats faster than Stropes can make them. It has been selling the product on a credit basis, telling customers to “pay when they can.” Oddly, even though sales are tremendous, the company is having trouble paying its bills.

Instructions

Write a memo to the president of Stropes Corporation discussing these questions:

(a) What steps should be taken to improve the company’s ability to pay its bills?

(b) What accounting steps should be taken to measure its success in improving collections and in recording its collection success?

(c) If the corporation is still unable to pay its bills, what additional steps can be taken with its receivables to ease its liquidity problems?