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Chapter 7

ACG2021 Chapter 7: Michelman

Accounting: General
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Chapter 7
Accounts receivable- Amounts due from customers for credit sales
Interest receivable
Rent receivable
Tax refund receivable
Receivables from employees
Credit sales are recorded by debiting accounts receivable
General ledger has a single accounts receivable account
Called a control account
Each customer with an accounts receivable account is listed separately
Accounts receivable ledger
All the separate account balances added together is what is in the accounts
receivable account in the general ledger
For a credit sale
Debit accounts receivable
Credit Sales
For a collection
Debit cash
Credit accounts receivable
4 reasons companies allow customers to use third party debit and credit cards
1. The seller does not have to determine who gets credit and how much
2. The seller avoids the risk of the customer not paying (the risk is transferred to the card
3. The seller typically receives cash from the card company sooner than had it granted
credit directly to customers
4. More credit options for customers can lead to more sales
The seller pays a fee when the customer uses a card. Usually between 1%-5%
Debit cash
Debit credit card expense
Credit sales
Installment accounts receivable are asset accounts
Interest payable liability account
Uncollected accounts (bad debts)- Accounts from customers that don’t pay back what they
Expense of selling on credit
Companies believe that granting credit will increase total sales enough to offset bad
2 methods for uncollected accounts
Direct write off method
Allowance method
Recording and writing off bad debts
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