[NOISE] How do we record account receivables in real life? Here's an example for a Walmart, I just focused on asset side of four months at the end of year 2015. The account that we are interested in, receivables net. First of all, what do we mean by net? Here we talk about gross receivables, net of provision for doubtful accounts, as well as provision for sales returns. As we have mentioned before, these provisions are contrasted accounts. They have a negative balance but then you are recording the balance sheet. They are not recorded separately, they are part of receivables. That is why you see here account receivables net. It's net of provision for doubtful accounts as well as provisions for sales returns. What is the size of this accounts receivable net? 6,778. Notice one more time, that all of these numbers are in medium. So basically, by the end of year 2015, Walmart expects to collect from customers, $6.8 billion. Let's do a couple of exercises about Walmart. Suppose the total provision for sales return is 100. And total provision for doubtful accounts is 400. The question here is what is the percentage of total account receivables Walmart doesn't expect to collect at the end of year 2015? So how do we solve this problem? First of all, we're interested in the amount of receivables that Walmart doesn't expect to collect. So, it's calculated as the total amount of provisions. That's we create the provisions. These are, provisions for sales returns, we don't expect to collect the sales return and provision for bad debts. Again bad debts will go south, we will not be able to collect them. So, it's calculated as provisions divided by total account receivable. It is not net account receivable. It's total amount of account receivable. So how do we calculate this? First of all the amount of total provisions is 100. It's the provision for sales return. And 400 is provision for doubtful accounts. The denominator here is total account receivable. Total account receivable is equal to net account receivable which is 6,778, we have seen in the previous slide, plus $500 of total amount of provisions. We know that provisions are recorded net on the balance sheet, so in order to calculate total amount of account receivable, I need to add back provisions. So if you add back $500, the total amount of denominator becomes $7,278. 500 divided by 7,278 is 7%. So in other words, by the end of 2015, Walmart doesn't expect to collect 7% of its total accounts receivable. Here is another example, suppose that the provision for doubtful accounts at the end of 2014 is 510. Notice that in the slide of Walmart we were talking about 2015 numbers. So this is amount of account, provision for doubtful accounts at the end of last year. And suppose also that the amount of bad debt expense in year 2015 is 20 million. So what is the amount of accounts receivable that are written off? To calculate this, we need to go through provision for doubtful accounts. Provision for doubtful accounts has the following components. First of all, there's the beginning amount of provision. It is given in the question as 510. The provision amount will go up whenever you have any bad debts. It is given into question as 20. Provision will go down whenever you write off some account receivables, that is what is being asked in the question, that's why I have a question mark. And you come up with the ending amount of provision, which is $400 given in the previous slides. If you go through this calculations, minus 510. Minus 20, plus the amount of accounts receivables written off is equal to ending amount of provision, which is minus 400. Then you are going to find that the question mark is $130 million. So Walmart writes off, in our hypothetical question, $130 million because they're uncollectable from its own customers.