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Lecture 11

MGMT 1A Lecture Notes - Lecture 11: List Of The Shield Episodes, Petty Cash, Office SuppliesPremium


Department
Management
Course Code
MGMT 1A
Professor
Gardner
Lecture
11

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MGMT 1A Lecture 11 Notes - Petty Cash and Methods of Handling Bad Debts
Petty Cash:
- A way to pay for those little expenditures  that come up all the time (postage, delivery,
etc)
- An imprest account (it has a fixed balance that doesn’t change)
1) Establish Petty Cash found
Journal Entry:
Dr. Petty Cash 100
Cr. Cash 100
2) Replenish Fund
Freight in 23
Office Supplies 43
Misc. 18
          83  cash remaining 17
Journal Entry:
Dr. Freight in 23
Dr. Office supplies 43
Dr. Misc. 18
Cr. Cash 83
3) Replenish again
Freight in 40
Misc. 30
        70 cash remaining 28 (missing 2 dollars)
Journal Entry:
Dr. Freight in 40
Dr. Misc. 30
Dr. Cash short / over 2
Cr. Cash 72
Cash short or over is a miscellaneous account.
- If it has a DR balance, it is a misc. Expense
- If it has a CR balance, it is a misc. Revenue
4) Replenish again
Freight in 40
Misc. 30
         70 cash remaining 35 (over)
Journal Entry:
Dr. Freight in 40
Dr. Misc. 30
Cr. Cash short / over 5 (account for the extra $5 in the petty cash box)

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Cr. Cash 65
Part II. (This is going to be on the Final)
Accounts Receivable (A/R)
Dr. A/R
Cr. Sales
Methods of Handling Bad Debts or Uncollectible Accounts
- Collectibility is a major business problem associated with A/R
- For every business with accounts receivable must estimate an allowance for
uncollectible accounts and record a bad debt expense
There are 3 methods:
A. Direct Write Off Method (TAX, NOT GAAP)
B. Allowance Method (GAAP, NOT TAX)
a. Income Statement Approach (% of credit sales)
b. Balance Sheet Approach (% of A/R)
i. % of Total A/R
ii. % of A/R Aging
A. Direct Write off Method: when you are sure that they are not going to pay
Dr. Bad Debt expense
Cr. Receivable Acct.
This is not GAAP because it violates two important principles:
1. Matching - costs incurred to generate revenues should be expensed in the same
accounting period as the revenues
2. Conservatism - do not overstate assets and income
B. Allowance Method (for financial accounting purposes, and required by GAAP)
a. Income Statement Thod (% of Credit)
i. Ex.
Year 1:
Credit Sales: 1000,000
X% Bad                     2%
Bad Debt 20,000
Journal entry to accrue from the allowance for Bad Debt:
Dr. Bad Debt expense 20,000
Cr. Allowance 20,000
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