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chapter7notes - Chapter 7 Investments and Receivables...

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Chapter 7 – Investments and Receivables. Accounting for Investments: A. Investing in Highly Liquid Financial Instruments B. Investing in Stocks and Bonds of other companies 1. No Significant Influence 2. Significant Influence 3. Control
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Accounts Receivables (Trade) amounts due from customers from sale of goods/services. A. Record when sale is made. A company makes a credit sale to a customer for $500 on Nov.1, year 1. On March 1, year 2 the customer declares bankruptcy. Nov. 1 Dec. 31 (yr. end) March 1 |__________________|__________________| Accounting Question: When to record Uncollectible Receivables? Bad Debts - cost of doing business on credit B. How To Report: 1. Bad Debt Expense – Operating expense on the income statement. Must report the expense in the same accounting period you recognize the credit sale. 2. Accounts Receivable – Current asset on the balance sheet. GAAP: Must record your account receivable at the amount you expect to receive in cash. This is called the Net RealizableValue (NRV). Nov. 1 Dec. 31 (yr. end) March 1
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|__________________|__________________| C. Recording Bad Debts: (2) Methods - 1. Direct Write-Off Method – Wait until you can specifically identify the bad debt customer (March 1, year 2) and then record bad debt expense. 2.
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chapter7notes - Chapter 7 Investments and Receivables...

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