chap7mod4 - Introduction to Financial Accounting Chapter 7,...

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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 1 Chapter 7, Module 4 Chapter 7, Module 4 Slide 1 AMIS 211 Introduction to Financial Accounting Professor Marc Smith Chapter 7 Module 4 Chapter 7 Module 4 Hi everyone. Welcome back. Now that we have gone through the basic transactions that impact the Accounts Receivable and the Allowance for Doubtful Accounts, let’s take a look at an Example and see if we can go ahead and make the entries for ourselves. And, the Example I want to look at comes from the Web site problems, so make sure to have that in front of you. And, let’s look at Example #2. Let’s just read it together before we get started. Here is what it says:
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 2 Chapter 7, Module 4 “The following transactions relate to Betty DiRose Inc.” And you can see that there are five (5) transactions: January 4th through March 8 th 2004 through 2005. And, the Requirements are: “For each transaction, first make the Journal Entry to record it. And then, secondly, for each transaction, indicate the effect it has on Net Income, the Income Statement; our Net Realizable Value (NRV), the Balance Sheet, and our cash flows, the Statement of Cash Flows.” So, how does each transaction effect the major financial statements? Let’s go ahead and get started. Let’s move to the next slide. Slide 2 Chapter 7 Module 4: Example #2 This is recording the credit sale Date Account Titles Debit Credit General Journal 1/4/04 Accounts Receivable 6,500 Sales Revenue 6,500 Net Income Net Realizable Value Cash Flows Increase Increase No Effect And, let’s start with the first transaction: January the 4 th . “Betty made a credit sale to M.T. Glass—a customer—in the amount of $2,500 and a credit sale to Sandy Beach—a customer—in the amount of $4,000.”
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 3 Chapter 7, Module 4 So, we have to record the making of a credit sale. This is one we should be able to do without a lot of difficulty. To record a credit sale: You debit Accounts Receivable and credit Sales Revenue to reflect the fact that: we have earned revenue by making a sale but we have not collected the cash yet. So, we have an Account Receivable. So, the next question is: How does this credit sale impact our three financial statement items—Net Income, NRV, and cash flows? Net Income is increased. We have Sales Revenue. The revenue increases the Net Income on the Income Statement. The Net Realizable Value (NRV)—which you should remember is: your Accounts Receivable minus (-) your Allowance for Doubtful Accounts. The NRV is also increased. You have increased your Accounts Receivable. You have increased the first side of the subtraction. So, we have an increase to Accounts Receivable causing an increase to the Net Realizable Value.
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chap7mod4 - Introduction to Financial Accounting Chapter 7,...

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