22107 Lecture Notes - Lecture 6: Operating Expense, Accounts Receivable, Debits And Credits
Document Summary
Receivable: represents a bs claim on the assets of another entity. Its balance is subtracted from sales (some people. Net realisable value = gross receivable allowance. Companies must follow principle of conservatism and report their accounts receivable at fair value (net realisable value) for impairment: methods used to account for uncollectable receivables. An uncollectable account is written off and an expense is recorded. Determines receivable is uncollectable & removes from record. Provides opportunity to manipulate earnings: methods for estimating bad debt expense. When estimating bad debt expense using allowance method. Allowance account is adjusted to reflect existing accounts. To record an estimate of bad debt expense. To write off receivable when they become uncollectable: horizontal, vertical and ratio analyses, receivables turnover ratio. Shows how long it takes a company to generate/collect receivables. Shows % of receivables expected to be uncollectible (low = good: accounting for notes receivable.