Chapter 7 Notes Receivable and Accounts Receivable

Chapter 7 Notes Receivable and Accounts Receivable -...

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Accounts ande Notes Receivable Installment Sales and Receivables -Installment accounts receivable are amounts owed by customers from credit sales for which payment is requred in periodic amounts over an extended time period. -Always classified as a current asset. Valuing Accounts Receivable - When a company directly grants credit to its customers, it expects that some customers will not pay what they promised. The accounts of these customers are uncollectible accounts. (AKA Bad Debts) - The total amount of uncollectible accounts is an expense of selling on credit - Many companies sell on credit if they expect some accounts to be uncollectible because: 1. Companies believe that granting credit will increase total sales and net income enough to offset bad debts. - Companies use two methods to account for uncollectible accounts: 1. Direct write off method 2. Allowance method - Direct Write off Method- Records the loss from an uncollectible account receivable when it is determined to be uncollectible - Matching Principle applied to bad debts Matching principle requires expenses to be reported in the same accounting period as sales they helped produce. Thus bad debts expense linked to those sales is matched and reported in the same
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Chapter 7 Notes Receivable and Accounts Receivable -...

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