Chapter 7 Summary

Chapter 7 Summary - Chapter 7 1) Describe the tradeoffs of...

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Chapter 7 1) Describe the tradeoffs of extending credit to customers a) By extending credit to customers, a company is likely to attract a greater number of customers willing to buy from it. b) The additional costs of extending credit include increased employee costs, bad debt costs, and delayed receipt of cash. 2) Estimate and report the effects of in collectible accounts. a) When bad debts are material, the company must use the allowance method to account for un-collectibles. This method involves the following steps: i) Estimate and record un-collectibles with an end-of period adjusting journal entry to bad debt expense and the allowance for doubtful accounts. ii) Identify and write off specific customer balances in the period that they are determined to be un-collectible. b) The adjusting entry reduces net income as well as net accounts receivable. The write off affects neither. 3) Report notes receivable and compute interest a) A note receivable specific the amount loaned, when it is to be repaid, and the interest rate associated with the note receivable. As time passes and interest is earned on the note, accountants must record an adjusting journal entry that accrues the interest revenue that is receivable on the note
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Chapter 7 Summary - Chapter 7 1) Describe the tradeoffs of...

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