Embed Size (px)
Citation preview
Plan for today
• Quiz 6 back --- • Finish lecture material• Practice Problem• Practice Quiz• Quiz 7
• http://ksooklal.comuv.com/BMGT220/
Key Topics in Chapter 8• Accounts Receivable
• #1: Recognizing accounts receivable• #2: Valuing accounts receivable• #3: Disposing of accounts receivable
• Recognizing Accounts Receivable• Sales on accounts• Collection of cash
• Valuing Accounts Receivable• Bad Debts Expense• Direct Write-off Method
• Not acceptable for financial reporting purposes• Bad Debts Expense will show actual losses• Simple, Exact method
Key Topics in Chapter 8 (Continued)• Allowance Methods:
– Estimate Bad Debts in the period of the sales– Matching principle: matches sales with expenses– Reports accounts receivable on BALANCE SHEET at estimated value– 2 methods: % of sales vs. % of receivables
• Method #1: % of sales– Focuses on bad debt expense, ignores existing balance of allowance
for doubtful accounts– Matches expenses with revenues– Focus on Income Statement– Sales Bad Debts Expense
• Method #2: % of receivables– Focuses on Balance Sheet Relationships– Accurate valuation of receivable on balance sheet– Aging schedule– Consider existing balance
Key Topics in Chapter 8 (Continued)• Disposable of receivables
– Sell receivables for cash, minus a service charge• Bank Credit Sales
– Credit cards from third parties result in:• Cash• Service Expense• Sales
• Types of Journal Entries– Recognizing Accounts Receivable– Adjusting Entry– Write-off– Recovery– Cash Collection– Disposal– Bank Credit Card Sales
Useful Equations• Cash Realizable Value = Ending Accounts Receivable –
Ending Allowance for Doubtful Accounts• % of Sales method:
– Current Period Sales x Bad Debt % = Estimated Bad Debts Expense
• Average Collection Period in Days = Days In Period/Accounts Receivable Turnover
• Accounts Receivable Turnover = Net Credit Sales/Average Net Accounts Receivable
Journal Entries (Allowance Method)
• Original Sales/Accounts ReceivableAccounts Receivable 800
Sales 800• Write-off (Allowance)
Allowance for Doubtful Accounts 100Accounts Receivable--Aashima 100
• Write-off (Direct)Bad Debts Expense 100
Accounts Receivable—Aashima 100• Adjusting Entry (Allowance method only)
Bad Debts Expense 100Allowance for Doubtful Accounts 100
Journal Entries (Allowance Method)
• RecoveryReversal of Write-off
Accounts Receivable--Aashima 80Allowance for Doubtful Accounts 80
Cash Collection:
Cash 80Accounts Receivable 80
• Disposal of Accounts ReceivableCash 98Service Charge 2
Accounts Receivable--Aashima 100• Bank Credit Card Sales
Cash 98Service Charge 2
Sales 100
