Financial and Managerial Accounting Financial Accounting 2.Apply the direct write-off method for uncollectibles 1. Measure the cost of a plant asset CH8 Receivables 1.Define and explain common types of receivables and journalize sales on credit, credit card sales, and debit card salesA receivable occurs when a business sells goods or services to another party on account (on credit). 3.Apply the allowance method for uncollectibles and estimate bad debts expense based on the percent-ofsales, percent-of-receivables, and aging-of-receivables methods * There are 3 methods to estimate uncollectibles using the allowance method: Percent-of-sales (as a percentage of net credit sales). Bad debts expense = Net credit sales x % Percent-of-receivables (as a percentage of accounts receivable). Taget balance = Ending balance of accounts receivable x % . Bad debts expense = Target balance - or + unadjusted credit/debit balance of allowance for bad debts Aging-of-receivables: (businesses group individual accounts based on how long the receivable has been outstanding). Target balance using the age of each account and then Bad debts expense = Target balance - or + unadjusted credit/debit balance of allowance for bad debts 4. Account for notes receivable including computing interest and recording honored and dishonored notes Interes receivable - Interest revenue Cash - Note receivable - Interest receivable - Interest revenue Dishonors a note : the dishonored note and the unpaid interest are transferred to Accounts Receivable. Later, the Accounts Receivable can be written off under the direct write-off method or the allowance method. Accounts receivable - Note receivable - Interest revenue 5.Use the acid-test ratio, accounts receivable turnover ratio, and days’ sales in receivables to evaluate business performance The acid-test ratio is used to measure a company’s ability to pay its current liabilities The accounts receivable turnover ratio measures the number of times the company collects the average accounts receivable balance in a year.
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