ACCT1501 Lecture Notes - Lecture 8: Accounts Receivable, Debits And Credits, Matching Principle

90 views10 pages

cyanalpaca20

11 Nov 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Week 8 accounts receivable and further record-keeping. Should be recorded at lower of cost or net realizable value (nrv: cost of acc receivable is total that is still unpaid, nrv is how we can actually realise out of total amount of credit sales. After bad debts has materialized (ie. certain that customer will not pay their debt) write-offs. The older the acc, the greater the probability that it will not be collected. Allowance % = estimated amount that will not be collected. Increase (or debit) bad debts expense + decrease (or credit) allowance for dd. Decrease (or debit) bad debts expense + increase (or credit) allowance for. Always do write-off first (amount that definitely will not be collected) before adjusting ending balance: calculate trade discount and cash discount and record appropriately. Trade discount discount given by businesses to customers who purchase large volumes. This discount is not recorded in the books.

Related Questions

At December 31, 2009, Vizarro Company reports the following resultsfor its calendar-year.
Problem 9-3A
Estimating and reporting bad
debts
P1 P2
Cash sales . . . . . . . . . $2,184,700
Credit sales . . . . . . . . 3,720,000
Accounts receivable . . . . . . . . . . . . . . . . . $1,127,500debit
Allowance for doubtful accounts . . . . . . . . 29,030 debit
Check Bad Debts Expense:
(1a) $55,800, (1c) $62,855
In addition, its unadjusted trial balance includes the followingitems.
Required
1. Prepare the adjusting entry for Vizarro Co. to recognize baddebts under each of the following inde-
pendent assumptions.
a. Bad debts are estimated to be 1.5% of credit sales.
b. Bad debts are estimated to be 1% of total sales.
c. An aging analysis estimates that 3% of year-end accountsreceivable are uncollectible.
2. Show how Accounts Receivable and the Allowance for DoubtfulAccounts appear on its December31,
2009, balance sheet given the facts in part 1a.
3. Show how Accounts Receivable and the Allowance for DoubtfulAccounts appear on its December31,
2009, balance sheet given the facts in part 1c.

P1 - Apply the direct write-off and allowance methods to ac-
count for accounts receivable. The direct write-off method
charges Bad Debts Expense when accounts are written off asun-
collectible. This method is acceptable only when the amount ofbad
debts expense is immaterial. Under the allowance method, bad
debts expense is recorded with an adjustment at the end ofeach
accounting period that debits the Bad Debts Expense accountand
credits the Allowance for Doubtful Accounts. Theuncollectible
accounts are later written off with a debit to the Allowancefor
Doubtful Accounts.
P2 - Estimate uncollectibles using methods based on sales and
accounts receivable. Uncollectibles are estimated by focus-
ing on either (1) the income statement relation between baddebts
expense and credit sales or (2) the balance sheet relationbetween
accounts receivable and the allowance for doubtful accounts.The
first approach emphasizes the matching principle using theincome
statement. The second approach emphasizes realizable value of
accounts receivable using the balance sheet.

I

lilacplatypus827

Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the companyâs fiscal year-end. The 2017 balance sheet disclosed the following: Current assets: Receivables, net of allowance for uncollectible accounts of $48,000 $ 522,000 During 2018, credit sales were $1,840,000, cash collections from customers $1,920,000, and $57,000 in accounts receivable were written off. In addition, $4,800 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following: Percentage of Year-End Percent Age Group Receivables in Group Uncollectible 0â60 days 70 % 5 % 61â90 days 20 15 91â120 days 5 20 Over 120 days 5 40 Required: 1. Prepare summary journal entries to account for the 2018 write-offs and the collection of the receivable previously written off. 2. Prepare the year-end adjusting entry for bad debts according to each of the following situations: Bad debt expense is estimated to be 4% of credit sales for the year. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable. 3. For situations (a)â(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2018 balance sheet?

pinkantelope545

32. If a company fails to record estimated bad debts expense,

a. cash realizable value is understated.

b. expenses are understated.

C. revenues are understated.

d. receivables are understated.

33. Leary Corporation had net credit sales during the year of $1,200,000 and cost of goods sold of $720,000. The balance in accounts receivable at the beginning of the year was $120,000 and at the end of the year was $180,000. What was the accounts receivable turnover?

a. 8.0

b. 10.0

c. 6.7

d. 4.8

lilacfrog729

ACCT1501 Lecture Notes - Lecture 8: Accounts Receivable, Debits And Credits, Matching Principle

Document Summary

Get access

Related Documents

ACCT1501 Lecture Notes - Lecture 7: Accounts Receivable, Current Asset, Matching Principle

ACCT1501 Lecture Notes - Lecture 8: Subledger, Debits And Credits, General Ledger

ACCT1501 Lecture Notes - Lecture 7: Accounts Payable, Debits And Credits, General Ledger

Related Questions