Reimersppt_ch07 - 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 6 You learned: o How to Calculate the cost of Inventory and Cost of Goods Sold o Using the four inventory cost flow assumptions o FIFO o LIFO o Average Cost o Specific Identification
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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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60,000 Accounts Receivable 5,000 Allowance for Uncollectible Accounts We continue to bill the entire $60,000 …in a way that preserves the original information Experience tells us that $5,000 will probably not be collected.
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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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As learned in Chapter 4, the Revenue Recognition Principle…. Requires that revenues be recorded in the time period when the work is performed, and the earnings process is complete.
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Income Statement Revenues: Service Revenue 45,000 Rental Revenue 0 Total Revenues 45,000 Expenses: Wages Expense 26,300 Equipment Rental Expense 1,500 Rent Expense 0 Advertising expense 2,600 Repairs Expense 900 0 0 Total Expenses 31,300 Net Income (Loss) 13,700 Revenue  Recognition  Principle
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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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Income Statement Revenues: Service Revenue 45,000 Rental Revenue 0 Total Revenues 45,000 Expenses: Wages Expense 26,300 Equipment Rental Expense 1,500 Rent Expense 0 Advertising expense 2,600 Repairs Expense 900 0 0 Total Expenses 31,300 Net Income (Loss) 13,700 Revenue  Recognition  Principle Matching  Principle 
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Revenues: Service Revenue 45,000 Rental Revenue 0 Total Revenues 45,000 Expenses: Wages Expense 26,300 Equipment Rental Expense 1,500 Rent Expense 0 Advertising expense 2,600 Repairs Expense 900 0 4,000 Total Expenses 35,300 Net Income (Loss) 9,700 Bad Debts Expense needs to be recorded in the same time period as the sale Matching  Principle  Bad Debts Expense Revenue  Recognition  Principle
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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.
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Reimersppt_ch07 - Chapter 7 Cash, Accounts Receivable, and...

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