FinancialAccounting_Accts_Receivable_updated

FinancialAccounting_Accts_Receivable_updated - ORIE 350...

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    ORIE 350 September 19, 2006 Accounts Receivable
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    Notes Prelim room assignments: Surnames A – Lee: Hollister B-14 Surnames Leland – Z: Kimball B-11 You will need your Cornell ID card to get into Kimball Hall, using the card reader on the front door.
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    Accounts Receivable Turnover As mentioned, we will not use the accounts receivable turnover analysis given in Chapter 8. Use the cash cycle equations and method used in class.
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    Accounts Receivable Accounts receivable account is treated as a current asset. We want to be sure to record this asset at its correct value. The value we show on the balance sheet should be the same as the amount of cash we expect to convert it into. It is important to have an accurate figure, as accounts receivable can be quite large for some firms. For example, General Motors has over $15 billion in receivables.
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    Accounts Receivable Using accrual accounting, we recognize sales on account as revenue. Some of these customers will fail to pay. Thus, we have to record some amount each period to recognize this. This amount will be recorded as an expense, a “bad debt expense” This is typically small (like 2% of total sales).
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    Direct Write Off Method This method is common sense. Using this method, when I learn about an existing Accounts Receivable that I cannot collect upon, I will charge it off as an expense.
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    Direct Writeoff Your company sold an item on account to another company for $20,000 in 2003. You recorded this revenue in 2003. In 2004, you find that this company has gone bankrupt and you reverse this revenue. The Matching Principle has been violated! The revenue is recorded in 2003, the expense in 2004.
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    Direct Charge-Off Disadvantages: 1. The expense occurs in a different period than does the initial revenue, which violates the matching principle. 2.
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This note was uploaded on 04/05/2009 for the course ORIE 350 taught by Professor Callister during the Summer '08 term at Cornell University (Engineering School).

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FinancialAccounting_Accts_Receivable_updated - ORIE 350...

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