ACC 110 Chapter Notes - Chapter 6: Accounts Receivable, Income Statement, Financial Statement
Document Summary
Write offs have no impact on the net amount of accounts recievable which is (a/r allowance for uncollectibles) The direct writeoff method under accrual accounting cannot be applied as the direct write off only recognizes an expense periods after the sale was made, therefore they are not recognized in the same period. The % of credit sales and receivables provide a bad debt expense and report accounts recievable at the amount that is expected to be collected. Returns are a contra revenue account because if a person returns an item, the sale has never occurred therefore no revenue was earned, therefore it is deducted from revenue. Revenue reported on the income statement is reported after returns have been deducted from the revenue that is earned. If returns are not recorded, the revenue would be overstated as a result of not taking account the possibility therefore misleading stakeholders. Pvn,r = 1/(1+discount rate)^2 * amount on a/r.