The first group of short term assets we are going to talk about in this class is accounts receivables. So what's an example here? For example, there is a firm which is making a sale of let's say $1,000, but it doesn't collect the money from the customer at the time of sale. Then this $1000 will be recorded as an account receivable on the balance sheet. So the question now is how do we label account receivables? Account receivables are not valued at their face value. In the example that I just gave you, it's quite possible that the value that you see for the account receivable balance on the sheet the balance may not be $1000. Instead account receivables are valued in terms of their net realizable value. Net realizable value is equal to face value, in the example I just gave you it is $1000, minus three things. These are cash discounts, sales returns, and bad debts. Now we will spend some time on these three terms. The first term that we have just mentioned is cash discounts. What's a cash discounts? These are discounts given to customers, over sale price, if they pay within a certain time period. The main purpose of the cash discounts is to encourage customers to pay early. Let's give an example. Here I have Illini supermarket which sells goods worth $2,000 to customer on credit, that's why it is accounts receivable, on January 1, 2016, based on some terms. These are 3/15 and n/30. So let me just explain, let me must stop with the second one, enter the means. This receivable needs to be collected within 30 days. The first term 3/15 means, on the other hand if the customer pays within 15 days customer will get 3% cash discount. And it turns out that customer makes the payment on January 10th 2016, in other words, customer pays within 15 days and customer's entitled to this cash discount. So how do we do the accounting for this? First of all, we record the sale. So on the income statement IS column, there is an increase of $2000. This is the amount of sales. And at the same time on the account receivable column, AR, we have $2000 increase. This is on January 1st, 2016. On January 10th 2016 what happens is that customers pay all of this receivables but since the customer pay early he is entitled to a certain amount of discount. What is the size of this discount, which is the last column here? It is $2,000 times 3%, which is 60. And the 60 is recorded as a negative, as a minus, from income statement column. In general, we consider the $60 of cash discount as a reduction from sales. Second of all, all of the account receivable disappears because the customer makes the payment. And finally, what is the amount of total cash collection? It is $2,000, which is the amount of face value of the receivable minus $60 of cash discounts. So as you can see here, the value of the account receivable that on the balance sheet may not be $2,000. It is $2,000 minus cash discounts.