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Ch 06 - 1 LEARNING OBJECTIVE 1 Describe the common...

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Unformatted text preview: 1 LEARNING OBJECTIVE 1 Describe the common classifications of receivables. 2 CLASSIFYING RECEIVABLES Accounts receivable Short term credit 30 – 60 days Notes receivable Longer term May be 1 year or more Other receivables LO 1 3 LEARNING OBJECTIVE 2 Describe the nature of & accounting for uncollectible receivables. 4 LO 2 What happens if customers don’t pay the balance on their receivables? Companies must recognize an expense to write off accounts that are not collectible. 5 UNCOLLECTIBLE RECEIVABLES 2 methods to acknowledge uncollectible accounts expense – Direct write-off – Allowance method LO 2 6 LEARNING OBJECTIVE 3 Describe the direct write- off method of accounting for uncollectible receivables. 7 DIRECT WRITE-OFF Bad debt expense recorded when account determined to be worthless. LO 3 8 Assets = Liabilities + Equity A/R = Ret Earn 5/10-4,200 =-4,200 Cash Flows Balance Sheet Income Statement-4,200 BDE LO 3 WRITE OFF MAY 10 D. L. Ross account deemed uncollectible & written off. 9 LO 3 What happens if an account previously written off is subsequently collected? 10 Assets = Liabilities + Equity A/R = Ret Earn 11/21 4,200 = 4,200 Cash Flows Balance Sheet Income Statement 4,200 BDE LO 3 COLLECTION 11/21: Part 1 D. L. Ross account reinstated b/c Ross pays account previously written off. 11 Assets = Liabilities + Equity Cash A/R = Ret Earn 11/21 4,200 -4,200 = Cash Flows Balance Sheet Income Statement Operating +4,200 LO 3 COLLECTION 11/21: Part 2 Collection of reinstated D. L. Ross account. 12 LEARNING OBJECTIVE 4 Describe the allowance method of accounting for uncollectible receivables. 13 ALLOWANCE METHOD Bad debt expense estimated at end of accounting period. LO 4 14 How would estimating bad debt expense affect financial statements? LO 4 15 Assets = Liabilities + Equity ADA = Ret Earn 12/31-40,000 =-40,000 Cash Flows Balance Sheet Income Statement-40,000 BDE LO 4 BAD DEBT ESTIMATED AJE ExTone estimates bad debts to be $40,000 out of $1,000,000 in A/R. 16 How would writing off an account under the allowance method affect financial statements?...
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Ch 06 - 1 LEARNING OBJECTIVE 1 Describe the common...

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