Chapter 7 notes - Chapter 7 Cash Accounts Receivable and...

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Chapter 7 Cash, Accounts Receivable, and Bad Debts Expense
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In Chapter 7 You will learn how to record and account for : o Cash o Receivables o Bad Debts
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Extending Credit Accounts Receivable is a Current Asset Accounts Receivable Start Billing Stop Billing Its balance represents the amounts owed by customers for goods or services they have already received Balance due from Customers
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60,000 Accounts Receivable Doesn’t Mean we’ll collect all $60,000 Just because the balance in Accounts Receivable is $60,000… Our customers may be unwilling or unable to pay the amount due.
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60,000 Accounts Receivable 5,000 Allowance for Uncollectible Accounts Its purpose is to reduce Accounts Receivable Allowance for Uncollectible Accounts is a Contra-Asset Account Assets are reduced with credits
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Balance Sheet Presentation: Accounts Receivable $60,000 Less: Allowance for Uncollectible Accounts ( $ 5,000) Net Realizable Value $55,000 This provides better information… Customers owe us $60,000 Of which we expect to write-off $5,000 And ultimately “realize” $55,000
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Matching Principle Requires that expenses be recorded in the same time period as the revenues they helped generate. Governs the Timing of Expenses
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Bad Debts Expense Allowance for Uncollectible Accounts The Adjusting Entry to record Bad Debts Is an end of period adjusting entry. As such, it affects one Income Statement Account, Bad Debts Expense And one Balance Sheet Account, Allowance for Uncollectible Accounts. Is required by the Matching Principle Is an ESTIMATED amount
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Estimate Allowance for Uncollectible Accounts Bad Debts Expense Allowance for Uncollectible Accounts Estimate Bad Debts Expense Impact of estimate on T accounts……… Reduces Income Reduces Assets
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Allowance for Uncollectible Accounts Accounts Receivable The Journal Entry to Write-off a customer’s account receivable Occurs when the account is deemed uncollectible Only Affects Balance Sheet Accounts: Accounts Receivable and Allowance for Uncollectible Accounts. Leaves Net Income, and the Net Realizable Value of Accounts Receivable UNCHANGED
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Write-offs Allowance for Uncollectible Accounts Allowance for Uncollectible Accounts Accounts Receivable Bad Debts Expense Impact of write-offs on T accounts… No Impact Write-offs
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Chapter 7 notes - Chapter 7 Cash Accounts Receivable and...

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