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BUSI 1003 - Class 5

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Carleton University
BUSI 1003
Patti Proulx

Class 5 Business Chapter 6 Classifying Receivables - Accounts receivable o Credit terms extended to customers  For example customer cant pay turn the account receivable into a note receivable (promisary note) o If a promisary note is given with a time of 30 days and it is not paid what do you do?  Contact & question, Freeze future transactions, charge interest. - Notes Receivable o More formal agreement o Includes a maker and payee - Other Receivables o Can include interest receivable, taxes receivable, and receivables from employees or officers Accounting for bad debts - Direct write off method o Records bad debt expense only when an account is deemed to be worthless  Reduce accoutns receivable and write off the debt.  The problem with direct write off method is that it is usually done many many months after the initial sale, for example an invoice might be dated for tday but I might not give up on it until December. December being when I give up. • Matching concept comes into play when I want to record the expenses pertaining to the sales in the same period, I want to match the expense to the revenue it gives rise too, Bad debts are an expense and should be matched to the revenue that it gives rise too, so whenever the sale is made you would increase retained earnings for that month. So if a bad debt ends in December you still have to record it for February, making direct write off a violation of direct write off method. o TL;DR: Direct write off method is always in violation of matching concept because you should always record debts for the month
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