Textbook Notes (270,000)
CA (160,000)
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ACC 100 (200)
Chapter 7

ACC 100 Chapter Notes - Chapter 7: Initial Public Offering, Retained Earnings, Stock Certificate


Department
Accounting
Course Code
ACC 100
Professor
Else Grech
Chapter
7

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ACC100 – Final Exam Notes
Chapter 7
Accounts Receivable
oLegal right to collect cash from a customer
oHas a future economic benefit = $$$
oIs the result of a credit sale to a customer
Credit sales
oDisadvantages:
Slows inflow of cash
Risk of uncollectible accounts
Valuation of Accounts Receivable
o2 issues:
Cannot overstate the value of the accounts receivable on the
balance sheet
Question: if we overstate assets, what are we in violation of?
Need to show bad debt expense in the same year as the related
revenue
Question: if we don’t overstate assets, what are we in violation
of?
Potential uncollectible accounts receivable balances – how can we account
for them?
oSome accounts receivables will be uncollectible
oDon’t know exactly WHICH customers will be uncollectible
oManagement uses their knowledge (based on past experience, current
economic times and industry averages) to GUESS what will go bad in
the future

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oHelps us: determine a conservative value for accounts receivable on
the Balance Sheet and determine the Bad Debt Expense on the Income
Statement
oCall the Allowance method!
Applying the allowance method:
oStep 1: Management estimates how much of the year end accounts
receivable balance will go back in the next 12 months
oStep 2: Management records the amount they estimated in the
CURRENT year, against the CURRENT income (matching principle)
Approaches to allowance method:
oPercentage of net credit sales (Income Statement approach)
Under this method, the bad debt expense and allowance for
doubtful accounts balances on the year-end financial statements
are DIFFERENT
oPercentage of accounts receivable (Aging method, Balance Sheet
approach)
Under this method, the bad debt expense and the allowance for
doubtful accounts balances on the year-end financial statements
are DIFFERENT
Chapter 8
Acquisition cost of property, plant, and equipment:
oPurchase price – discount + duty + transportation charges +
installation costs
oAcquistion cost only includes ONE TIME COSTS ONLY, not RE-
OCCURING COSTS
Depreciation of property, plant, and equipment:
oMatch cost of assets with periods benefited using:
Straight-line depreciation

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Accelerated methods = higher amount of deprecation in early
years
Double declining depreciation
o= (1 / useful life) x 2
oNOTE: Initially ignore residual value
oFinal year’s depreciation = amount needed to
equate book value with salvage value
oDouble the straight-line rate on a declining balance
(book value)
Reasons for choosing depreciation methods:
oStraight-line method
Simplicity
Reporting to shareholders
Comparability
Bonus plans
oAccelerated method
Technological rate of change and competitiveness
Comparability
Disposal of capital assets:
oRecord depreciation up to date of disposal
oCompute gain or loss on disposal
oProceeds > Book Value = Gain
oProceeds < Book Value = Loss
oIn order to determine if you have a gain or loss on sale, you have to
look at what the BOOK VALUE of the asset is at the exact time of the
sale (You get that information from your depreciation calculations)
oCalculate book value FIRST, THEN compare that value to the selling
price
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