Chapter 8 Notes - Chapter 8 notes An example if the company...

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Financial Accounting: The Impact on Decision Makers
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Chapter 2 / Exercise 2-12
Financial Accounting: The Impact on Decision Makers
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Chapter 8 notes An example if the company has an ending balance for receivables in 2013 is $150,000 and in 2014 the balance is $300,000, the percentage of uncollected is 5%. This is when the T account comes in handy.
Recording Write-off of an uncollectable account
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Financial Accounting: The Impact on Decision Makers
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Chapter 2 / Exercise 2-12
Financial Accounting: The Impact on Decision Makers
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Chapter 8 notes If management estimates that $2228 of accounts receivable will not be collected and the trial balance shows Allowance for Doubtful Account with a credit balance of $528, an adjusting entry for $1700 ($2228 - $582) is necessary. Date Account titles and explanation Dr. Cr. Bad debts expense 1700 Allowance for doubtful accounts 1700 If management estimates that $2228 of accounts receivable will not be collected and the trial balance shows Allowance for Doubtful Account with a debit balance of $528, an adjusting entry for $2810 ($2228 + $582) is necessary. Date Account titles and explanation Dr. Cr. Bad debts expense 2810 Allowance for doubtful accounts 2810 When a note is received the JE is at face value no interest is calculated After a 2 month note for $1000 with 12% interest The formula for computing interest is: Face (principal) x Rate (interest) x time Face value of note x Annual interest rate x Time in terms of one year = interest Date Account titles and explanation Dr. Cr. Notes Receivable 1000 Accounts Receivable 1000 After the note is pair the interest is then calculated Date Account titles and explanation Dr. Cr. Cash 1020 Notes Receivable 1000 20 1000 x 12% x 2/12
Chapter 8 notes Managing account receivable requires 5 steps Determine to whom to extend credit Determine a payment period Monitor collection Evaluate the liquidity of receivables Accelerate cash receipts from receivables Under the allowance method of accounting for bad debts Actual uncollectibles are debited to Allowance for Doubtful Account and credited to Accounts Receivable. Estimated uncollectibles are debited to Bad Debts Expense and credited to Allowance for Doubtful Account.

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