211c7m6 - Introduction to Financial Accounting Chapter 7,...

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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 1 Chapter 7, Module 6 Chapter 7, Module 6 Slide 1 AMIS 211 Introduction to Financial Accounting Professor Marc Smith Chapter 7 Module Chapter 7 Module 6 Hi everyone. Welcome back. Let’s see if we can put our knowledge as to how to estimate bad debts to test. And, let’s try a couple of examples. In this Module, let’s work through Example #3 from the Web site problems. And, let’s just read it together before we get started. Here is what it says: “XYZ Company had a $250,000 balance in its Accounts Receivable on December 31 st , 2002. Additionally, they had a $2,100 Credit Balance in their Allowance for Doubtful Accounts at Year-End 2002 before the Adjustment (AJE) for bad debt expense. During 2002, XYZ Company reported Credit Sales of $800,000.”
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 2 Chapter 7, Module 6 Required: Part A. “Let’s go ahead and let’s calculate the bad debt expense and the Net Realizable Value (NRV) of our Accounts Receivable using the Net Credit Sales Method.” And, Part A says: “Assume that we are estimating that 2% of our Net Credit Sales will be uncollectible.” Let’s go ahead to the next slide and let’s work the problem. Slide 2 Chapter 7 Module 6: Example #3, Part A Part A: Net Credit Sales Method 1. Bad debt expense = 800,000 x .02 Bad debt expense = $16,000 2. Accounts Receivable - Allowance for Doubtful Accounts Net Realizable Value NOTE: To determine the allowance for doubtful accounts, always use a t-account Under the Net Credit Sales Method: we know that the bad debt expense estimate is really very straightforward. We simply take the Net Credit Sales for the year—given as $800,000—and multiply (x) it by the percentage (%) we expect to be uncollectible—2%. Our bad debt expense is estimated as $16,000 for the year.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 3 Chapter 7, Module 6 So, using the Net Credit Sales Method to come up with bad debt expense is really pretty straight forward.
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211c7m6 - Introduction to Financial Accounting Chapter 7,...

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