CHAPTER%2006%20%20POWER%20POINT%202008

CHAPTER%2006%20%20POWER%20POINT%202008 - 1 CHAPTER 6...

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Unformatted text preview: 1 CHAPTER 6 ACCOUNTS RECEIVABLE CASH & INVESTMENTS 2 Accounts Receivable AMOUNTS TO BE COLLECTED RESULTING FROM A SALE ON CREDIT. A/R IS USUALLY THE 2ND LARGEST ASSET ON THE BALANCE SHEET. QUESTION: THE KZB COMPANY HAS AN A/R LISTING OF $250,000 AT THE YEAR END, DO YOU THINK THE WHOLE AMOUNT WILL BE COLLECTED? ANSWER: PROBABLY NOT 3 WHY NOT? -customer having cash flow problems -customer went bankrupt -Unsatisfied with merchandise ,may want to return goods -Unsatisfied may not want to pay full invoice 4 WAYS TO REDUCE COLLECTION PROBLEMS: 1- MUST HAVE CREDIT CHECK. 2- THE CREDIT POLICY SHOULD NOT BE SO TIGHT THAT CO. MAY LOSE SALES. 3- POLICY CAN’T BE SO LOOSE THAT IT MAY SELL TO “DEAD BEATS” 5 ESTIMATING UNCOLLECTIBLE AMOUNTS: WE DO NOT WANT TO OVER STATE THE ACCOUNTS RECEIVABLE, SO WE NEED TO WRITE DOWN A/R TO THE “NET REALIZABLE VALUE”. NRV= THE NET AMOUNT WE EXPECT TO COLLECT. 6 ACCOUNTS RECEIVABLE LIST CUSTOMER AMOUNT CRUISE INC 80,000 CLOONEY LTD 20,000 PITT & PITT 140,000 LE BANC. LTD 10,000 TOTAL 250,000 7 AGED A/R LISTING: CUSTOMER AMOUNT CURRENT1-30 DAYS 31-60 DAYS 61+ NAME CRUISE INC 80,000 80,000 CLOONEY LTD 20,000 20,000 PITT & PITT 140,000 50,000 50,000 40,000 LE BLAN LTD 10,000 10,000 TOTAL 250,000 130,000 70,000 40,000 10,000 8 Estimating Uncollectibles AFTER CAREFUL REVIEW THE MANAGER ESTIMATES THAT APPROX. $5,000 WILL BE UNCOLLECTIBLE. (NO ONE PARTICULAR ACCOUNT) THE MANGER ESTIMATES THE BAD DEBT TO BE $5,000 TO RECORD THE UNCOLLECTIBLES DR BAD DEBT EXP. 5,000 CR ALLOWANCE FOR DOUBTFUL ACCOUNTS 5,000 9 CONTRA ACCOUNT: AFDA : ALLOWANCE FOR DOUBTFUL ACCOUNTS CONTRA ACCOUNT TO THE ACCOUNTS RECEIVABLE CONTRA ACCOUNT: PARTNER ACCOUNT THAT IS NETTED ACCT. WITH OPPOSITE BALANCE BALANCE SHEET PRESENTATION ASSETS CURRENT ASSETS CASH $XX,XXX ACCOUNTS RECEIVABLE 250,000 A.F.D.A. -5,000 NET ACCOUNTS REC. 245,000 10 2 METHODS TO ESTIMATE UNCOLLECTIBLE AMOUNTS 1-PERCENTAGE OF SALES 2-PERCENTAGE OF RECEIVABLES 1-PERCENTAGE OF RECEIVABLE METHOD: THE KZB COMPANY HAD AN A/R OF $160,000 AND AN A.F.D.A. OF $10,000 AT THE YEAR END....
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This note was uploaded on 08/06/2009 for the course MANAGEMENT MGCR 211 taught by Professor Zajdman during the Summer '09 term at McGill.

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CHAPTER%2006%20%20POWER%20POINT%202008 - 1 CHAPTER 6...

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