Lecture10 - 1 Lecture 10 Sales and Accounts Receivable 2...

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Unformatted text preview: 1 Lecture 10 Sales and Accounts Receivable 2 Recall in the beginning… • Balance Sheet – Numbers are account balances on a specific date: the last day of the fiscal year or quarter. – To analyze what happened with an account from year-to-year or quarter-to- quarter, you can take the difference between the numbers • Income Statement – Numbers are “flows” of sales, expenses and income that took place over the past year or quarter • Cash Flow Statement – Numbers are “flows” of cash that took place over the past year or quarter – Uncommon to take difference between the flows, unless you’re just making an assessment of which year had more or less cash flow • Example: – Change in A/R balances (2008 balance – 2007 balance) on the balance sheet “should” approximate what you see on the cash flow statement for the fiscal year 2008 – Change in A/R balances (2007 balance – 2006 balance) on the balance sheet “should” approximate what you see on the cash flow statement for the fiscal year 2007 3 Tying Up A Loose Ends… • Consolidated Statements of Cash Flows • Net cash provided by operating activities = O • Net cash used in investing activities = I • Net cash provided by financing activities = F • Effect of foreign exchange changes on cash = FX • Other stuff = Other • Overall net change in cash = O+I+F+FX+Other = Net Change • Cash at the beginning of the fiscal year = Beginning balance • + Net Change • Cash at the end of the fiscal year = Ending Balance 4 Review • How effective is management at collecting cash from sales on account? – DSO • How efficient is management’s use of inventory? – Inventory Turnover and Inventory Days • How fast is the company required to pay suppliers? – Days Payable 5 Today • Revisit “Contra Accounts” • Digging deeper into Gross sales vs. Net sales; i.e., sales net of estimate returns • Digging deeper into Accounts Receivable – Estimating “allowance for doubtful accounts,” a.k.a. “bad debt” expense • Direct write-off method (wait until the default occurs) • Percentage of sales method • Age of receivables method 6 Review of Contra Accounts Merchandise Sales Revenue $96,000 How informative is this? What percentage of total sales is expected to be returned to the store for a refund? Accounts Receivable $80,000 How informative is this? What percentage of accounts receivable is expected to never get paid? 7 Review of Contra Accounts Total Sales Revenue $100,000 Is this more informative? What percentage of total sales is expected to be returned to the store for a refund? Accounts Receivable $100,000 Is this more informative? What percentage of accounts receivable is expected to never be paid?...
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Lecture10 - 1 Lecture 10 Sales and Accounts Receivable 2...

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