chap7mod2 - Introduction to Financial Accounting Chapter 7,...

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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 1 Chapter 7, Module 2 Chapter 7, Module 2 Slide 1 AMIS 211 Introduction to Financial Accounting Professor Marc Smith Chapter 7 Module 2 Chapter 7 Module 2 Hi everyone. Welcome back. Let’s continue our discussion of selling our product. And, we are dealing with the Sales Revenue and Accounts Receivable part of that. And, let’s spend some time on Accounts Receivable. Let’s move onto the next slide.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 2 Chapter 7, Module 2 Slide 2 Chapter 7 Module 2: Accounts Receivable ACCOUNTS RECEIVABLE Accounts receivable represent cash owed to the company. Accounts receivable come about when the company makes a credit sale (i.e., a sale on account) Big issue when you sell goods on account…. .. And remember: Accounts Receivable represent cash that is owed to the company. They come about when we make a sale of goods on account. We sell goods to our customers, who take the goods and say: “I will pay you later.” It is commonplace. It happens all the time in business. Of course, there is one big issue that we have to worry about whenever we sell goods on account. What do you think that is? What is going to be the one concern that we are going to run into when we sell goods on account? Go ahead to the next slide.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 3 Chapter 7, Module 2 Slide 3 Chapter 7 Module 2: Bad Debts NOT ALL CUSTOMERS PAY THEIR BILLS! Thus, the company must record BAD DEBT EXPENSE each year QUESTION: In which year should bad debt expense be recorded? A. In the year the credit sale is made B. In the year the account receivable is determined to be uncollectible The concern is: not everybody is going to pay us. Not all customers actually pay their bills! So, what are we going to do when customers fail to pay us what they owe us? In this case, because not all customers pay us, we must record what is called bad debt expense. And bad debt expense needs to be recorded every year. So, every year—because of the fact that not all customers are going to pay; it is just a fact of doing business—we are going to have to record bad debt expense. Now, I have a question for you: In which year should we record the bad debt expense related to a specific sale? I am going to give you two options—and I want you to think about it for a second. And, I want you to tell me: what would be the correct answer.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 4 Chapter 7, Module 2 In which year would we record bad debt expense? Would we record it, a): in the year that we actually make the credit sale; or b): in the year that we determine the customer won’t pay us?
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This note was uploaded on 04/21/2008 for the course ACCT 211m taught by Professor Zeigler/smith during the Winter '07 term at Ohio State.

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chap7mod2 - Introduction to Financial Accounting Chapter 7,...

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