ACC 100 Chapter Notes - Chapter 7: Accounts Receivable, Accounting Equation, Current Asset

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ultramarinewildebeest739

4 Dec 2018

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Acc100 chapter 7 https://www. youtube. com/watch?v=kzzyqzd6sk0&index=2 customers on account: record in equity (revenue) and assets (future right to collect cash, accounts receivable. Why companies sell on credit: get product or services without paying anything today liability they have to pay in the future, but benefit because they get the product/ service now, accounts receivable. What is the cost of selling on credit issue with accounts receivable negative effects of offering credit to customers. Business my need to purchase cod (cash on delivery) May have to build a relationship and prove to be a reliable payer before given credit terms credit terms depend on relationship between seller and buyer: seller may give buyer 1/15, n/45. Businesses sell on credit to be competitive. External stakeholders for decision making internal stakeholders make decisions how to move forward in the business. What do external stakeholders want to know about ar.

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please comment on post

The major advantage of extending credit sales is that it willincrease sales revenue. This is because customers who can't producecash today are still able to buy the good or service of theirchoice.

Extending credit sales is usually a good idea for businesses,but there are a few important factors to consider. First, thebusiness needs sufficient cash flow to account for Cost of GoodsSold (inventory). Customers' payments may delayed, but suppliersstill have to get paid on time. Thus, the business has to be keenlyaware of its cash levels.

This is especially true for businesses that sell large durablegoods at low volumes, like airplane engines. If a customer isunable to pay its debt, this bad debt may have a big affect on cashlevels available for suppliers and investment in otheractivities.

The most important factor to consider when deciding whether tooffer credit sales is the anticipated bad debt expense. This is thepercentage of credit sales that are not ultimately paid. Thebusiness will be forced to eventually write this off against theaccount receivables balance (credit). This may lead to a lowercredit rating. A smaller account receivable balance, which isconsidered liquid, is not good if you wish to borrow against thatbalance (secured borrowing).

Ultimately, a business has to decide whether 1) the increase insales revenue will be greater than the bad debt expense arisingfrom extending credit to customers; and 2) whether the increase insales revenue is sufficient to account for reduced and/or delayedcash flows.

It therefore goes without saying that the credit worthiness ofcustomers should be evaluated before deciding to lend. Backgroundchecks and credit scores should be reviewed. The goal of course tominimize any future bad debt expense.

Please comment on post

I believe Olin should consider to allow credit sales. Anadvantage would be is an increase in sales by offering to purchaseon credit. It also show that you respect your customers by trustingthem to pay for their purchases at a later time. Olin will gain therespect of his current customers while gaining new customers fromother competitors and creating competition.

There are some disadvantages to allowing credit sales. Cash flowwill be affected due to the delay in cash coming in according tothe credit terms. The cash that used to be available before willnot be there to pay bills. It's also just an overall huge risk totake. Customers credit history needs to be checked before takingthe risk. Even if the customer does have a good credit history itcan still lead to bad debts. If the collection agency isn't able toobtain the money then it is an expense to the business for theirpurchase. Accounts receivable will become a new account to fund.Accounts receivable will need to be calculated and updatedfrequently. If customers don't pay on time an invoice should besent out which will create more work.

Olin should make an estimate on how much revenue he willactually gain with the huge risk he is taking by allowing creditsales.

scarletmouse190

1. Using accrual accounting, revenues are recorded

a. when cash is received without regard to when the services are performed or products have been delivered to customers.

b. when a service has been performed or products have been delivered to customers without regard to when cash is received.

c. when cash is received at the time services are performed or products have been delivered to customers only if cash is received.

d.after the services are performed or products have been delivered to customers.

2. Deferred revenue is revenue that is

a. earned and the cash has been received.

b. earned but the cash has not been received.

c. not earned and the cash has not been received.

d. not earned but the cash has been received.

3. Adjusting entries always include

a. only income statement accounts.

b. only balance sheet accounts the cash account.

c. at least one income statement account and one balance sheet account.

4. Which of the following is considered to be an accrued expense?

a. a computer technician has installed the latest software updates and was paid on the same day

b. a computer technician has been paid in advance to install software updates as they become available

c. a computer technician has just signed an agreement with you regarding pricing for future work

d. a computer technician has installed the latest software updates, but you have not received an invoice or made payment

ochreplatypus211

ACC 100 Chapter Notes - Chapter 7: Accounts Receivable, Accounting Equation, Current Asset

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