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Ch09n - Oct 5 2010 D ebtor someone who has debt = M or e L...

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= More Liquid – AT the TOP Oct. 5, 2010 Notes Ch. 9 Debtor – someone who has debt Creditor – someone who grants credit. Accounts Receivables (amounts due from others) Accounts Receivable – results from the sale of goods and services – usually collected within 30-60 days. Notes Receivable – usually exist 60-90 days or longer, debtor pays interest. Other Receivables – nontrade receivables- generally not from operations of the business. Accounts Receivables 1. Receiving Accounts Receivable: (p. 399) Accounts Receivable Sales COGS Merchandise Inventory Accounts Receivable Interest Revenue 2. Valuing Accounts Receivable (p. 400) - Reported on Balance Sheet - Direct Write Off Method for Uncollectible Accounts o Expense of Bad Debts shows actual losses o Effects Income Statement and Balance Sheet o Often record bad depts. Expenses in a period different from the period in which they record the revenue. (Does not attempt to match bad debts expenses to sales revenue in the income statement.). Done THROUGHT the period. o UNLESS BAD DEBTS ARE INSIGNIFICANT , this method is not acceptable for financial reporting purposes. Bad Debts Expense (or Uncollectible Accounts Expenses) Accounts Receivable – (Company Name) - Allowance Method for Uncollectible Accounts o Involves estimating uncollectible accounts at the end of each period. o Better match on the income statement. o Required by GAAP when bad debts are MATERIAL in amount o Receivables on the balance sheet are stated at their Cash (net) realizable value
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