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Ar and notes receivable

Ar and notes receivable - ACCOUNTS RECEIVABLE NOTES...

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2009-09-09 1 ACCOUNTS RECEIVABLE & NOTES RECEIVABLE Accounts Receivable and Notes Receivable Topic Slides Introduction 1. Allowance for doubtful accounts 2. Writing off a bad account 3. Recovering an account previously written off 4. Method of estimating bad debt expense square4 Percentage of credit sales method square4 Aging of accounts receivable method 5. Notes receivable 2009-09-09 2
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2009-09-09 2 Accounts Receivable and Notes Receivable Topic Slides Accounts Receivable We assume when we make a credit sale that the customer will pay; however, that is not always the case: square4 Sometimes the customer pays late square4 Sometimes the customer never pays Thus there is a valid business cost associated with offering trade credit: an expense from uncollectible accounts. One would expect that as credit sales increase, this expense would also increase. How does one go about recording the expense associated with trade credit customers who do not pay? 2009-09-09 3 Accounts Receivable and Notes Receivable Topic Slides Allowance for Doubtful Accounts 1. Contra-asset account (credit balance) 2. Combined with the accounts receivable balance, it shows the net realizable value of accounts receivable as they would appear on the balance sheet. e.g., Accounts receivable $ 100,000 Less: Allowance for D/A (10,000 ) Net accounts receivable $ 90,000 2009-09-09 4
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2009-09-09 3 Accounts Receivable and Notes Receivable Topic Slides Allowance for Doubtful Accounts (cont.) 3. Opening balance is an estimation of what accounts will go bad during the year. 4. Closing balance is an estimation of what accounts will go bad next year.
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