ACC 501 Unit 4 Lecture - ACC 501 Unit 4 Lecture Unit...

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ACC 501 Unit 4 Lecture Unit Learning Outcomes Unit 4 ULO 1. Journalize common types of receivables including sales on credit, credit card sales, and debit card sales and notes receivables ULO 2. Apply allowances and write-off methods to uncollectibles, dishonored notes, and bad debts based on the percent-of-sales, percent-of-receivables, and aging-of-receivables methods ULO 3. Evaluate business performance using the acid-test ratio, accounts receivable turnover ratio, days’ sales in receivables, asset t urnover ratio, and times interest-earned ULO 4. Account for the cost of a plant asset and calculate depreciation using the straight-line, units-of-production, and double-declining-balance methods ULO 5. Account for intangible assets, the disposal of plant assets, and depletion of natural resources ULO 6. Calculate and journalize basic payroll transactions ULO 7. Account for current liabilities and contingent liabilities
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COMMON TYPES OF RECEIVABLES: SALES ON CREDIT, CREDIT CARD SALES AND DEBIT CARD SALES A receivable is a monetary claim against a business or an individual. There are three major types of receivables: accounts receivable, which represent the right to receive cash in the future from customers for goods sold or for services performed; notes receivable, which represent a written promise that the customer will pay a fixed amount of principal plus interest by a certain date in the future; and other receivables, which represent a miscellaneous category that includes any other type of receivables where there is a right to receive cash in the future. A critical component of internal control over receivables is the separation of cash-handling and cash-accounting duties. A separate accounts receivable account (called a subsidiary account) must be maintained for each customer in order to account for payments received from the customer and amounts still owed. The sum of all balances in the subsidiary accounts receivable will equal a control account balance, Accounts Receivable. Sales by credit cards and debit cards are treated as cash sales and typically include a fee (Credit Card Expense) that is paid by the business to the credit card processor. As a way to receive cash before receivables are collected, businesses can factor or pledge their receivables. DIRECT WRITE-OFF METHOD FOR UNCOLLECTABLES Writing off uncollectible accounts when using the direct write-off method involves a debit to Bad Debts Expense and a credit to Accounts Receivable. Recovery of accounts previously written off is recorded by reversing the write-off entry and then recording an entry to receive the cash. The direct write-off method violates the matching principle and is not the method required by GAAP.
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