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final_exam_review - Accounting Final Exam Review Chapter 7...

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Accounting Final Exam Review Chapter 7 Allowance for doubtful accounts and debt expense Bad debt expense xxx Allowance for doubtful accounts xxx Income statement approach for bad debt Current period credit sales x bad debt % = estimated bad debt expense A/R balance $200,000; credit sales $500,000; ADA balance $1,000 Historically, 3% of sales are uncollectable $500,000 x 3%=15,000 Bad debt expense 15,000 Allowance for doubtful accounts 15,000 ADA : start 1,000 B/S : A/R 200,000 I/S: Sales 500,000 Add 15,000 less: ADA (16,000) Bad debt expense 15,000 Balance: 16,000 Net A/R: 184,000 Balance Sheet approach for bad debt 1) Desired level in ADA: Year end A/R x Bad debt % 2) Bad debt expense Desired ADA balance - Existing balance in ADA = Estimated bad debt expense A review of outstanding A/R balances indicates that managers believe $20,000 will not be collected. ADA: beginning balance 1,000 “plug” 19,000 amount that won’t be collected 20,000 Bad debt expense 19,000 Allowance for doubtful accounts 19,000 *Income Statement approach: easier, good matching, poor valuation on balance sheet *Balance sheet approach: more time consuming, good valuation on balance sheet, poor matching on income statement (sales & bad debt expense not directly related) Factoring and assignment of receivables Every factor has: -Credit to A/R -Debit to cash
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-Debit to finance fee Factoring receivables: Milpitas Samson (factor) (seller) Cash 720,000 Finance fee 32,000 Receivables from Milpitas 48,000 Accounts Receivable 800,000 Chapter 8 Goods in transit FOB shipping: transfers ownership at shipping point FOB destination: transfer ownership as soon as it arrives Goods on consignment Owner records inventory until item is sold FIFO Assumes that items are sold in the chronological order of their acquisition The cost of the oldest inventory items are charged to COGS when sold The cost of the newest items remain in ending inventory Perpetual vs. period: COGS and ending inventory are the same
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