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Chapter 7 8 11.docx

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Ryerson University
ACC 100
Ron Babin

Chapter 7: accounts receivable Credit sales (selling on credit) - Disadvantages include: o Slows inflow of cash o Risk of uncollectible accounts  Conservatism and matching influence uncollectable accounts receivable - Subsidiary ledger: the detail for a number of individual items that collectively make up a single general ledger account - Control account: the general ledger account that is supported by a subsidiary ledger Write off bad accounts receivable Valuation of accounts receivable - 2 issues: o Cannot overstate the value of the accounts receivable on balance sheet o Need to show the BDE in the same year as the related revenue Accounting for bad debts: allowance method 1) Management estimates how much of the year end accounts receivable balance will go back in the next 12 months 2) Management records amount they estimated in the current year, against current income (matching principle) Approaches to allowance method 1) Percentage of net credit sales income statement approach - Percentage of net credit sales method - Write off accounts receivable 2) Percentage of accounts receivable aging method balance sheet approach - If negative needs to have adjustment CHAPTER 8: capital assets, property, plant and equipment - Book value = net book value (NBV) COST OF P, P&E - All costs necessary to acquire the asset and make it ready for intended use o Purchase price minus discount o Duty o Installation costs o Transportation costs Concept of amortization - Amortization is a process of allocating the amortizable cost of a long- lived asset as an expense or charge to income over its estimated useful life in a rational and systematic way - Amortizable cost= original cost – salvage value - It is not about: valueing assets or method for saving cash for asset replacement Depreciation of P, P & E - Straight line - Units of production are not used - Accelerate methods Straight line method - Allocated cost of assets evenly over useful life - Formulas: o Annual depreciation expense = amortization cost / EUL o Monthly depreciation expense = (annual cost - savage) / EUL o Depreciation expense for part year = monthly depreciation x N - Impact of depreciation on accounting equation Double declining balance method - Double the straight liner ate on a declining balance - Accelerated method are higher amount of depreciation in early years - DDB RATE = (1/USEFUL LIFE ) X 2 initially ignore residual value Reasons for choosing depreciation methods - Straight line o Simple o Reporting to shareholders o Comparable o Bonus plans - Accelerated method o Technological rate of change and competiveness o Comparable Disposal of capital assets. - Records depreciation up to the date of disposal - Computes gain or loss on dis
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