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

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1 Lecture 10 Sales and Accounts Receivable
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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
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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
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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
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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
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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?
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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?
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