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MGCR 211 Chapter 6.docx

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McGill University
Management Core
MGCR 211
Karen Zajdman- Borden

MGCR 211 Chapter 6 2272012 71500 AM I Accounts ReceivableA Amounts to be collected resulting from a sale on credit nd1 AR is usually the 2 largest asset on the balance sheet B Will the whole amount be collected Probably not 1 Cash flow problems bankruptcy unsatisfied may want to return goods unsatisfied may not want to pay full amount 2 How to prevent these problems a Credit check i Not too tight that we lose sales but cant be too loose that we sell to dead beats C Estimating accounts receivables 1 We do not want to overstate the AR so we need to write down AR to the net realizable value a NRV the net amount we expect to collect 2 Aged Accounts Receivable Listing a NameAmountCurrent130 3160 613 Estimating uncollectable a After careful review the manager estimates the amount uncollectable no one particular amountb To record it we need to make contra accountAllowance for doubtful accounts AFDA c Dr Bad debt expense5000 d Cr Allowance for doubtful accounts5000 D Contra account AFDA 1 AFDA Allowance for doubtful accounts 2 Contra account to the accounts receivable 3 Methods for estimating uncollectible amounts a Percentage of sales income statement method i Use a percentage of sales and add amount to the AFDA ending balance b Percentage of receivables balance sheet method i Use a percentage of AR for the total amount of the AFDA ending balance c Aging of accounts receivableiE To write off accounts
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