Ar and notes receivable

Ar and notes receivable - 2009-09-091ACCOUNTS...

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Unformatted text preview: 2009-09-091ACCOUNTS RECEIVABLE& NOTES RECEIVABLEAccounts Receivable and Notes Receivable Topic SlidesIntroduction1.Allowance for doubtful accounts2.Writing off a bad account3.Recovering an account previously written off4.Method of estimating bad debt expensesPercentage of credit sales methodsAging of accounts receivable method5.Notes receivable2009-09-0922009-09-092Accounts Receivable and Notes Receivable Topic SlidesAccounts ReceivableWe assume when we make a credit sale that the customer will pay; however, that is not always the case:sSometimes the customer pays latesSometimes the customer never paysThus 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?2009-09-093Accounts Receivable and Notes Receivable Topic SlidesAllowance for Doubtful Accounts1.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$ 100,000Less: Allowance for D/A(10,000)Net accounts receivable$90,0002009-09-0942009-09-093Accounts Receivable and Notes Receivable Topic SlidesAllowance 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.5.The initial estimation seldom coincides with the exact amount written off; therefore, we make a new estimate every period, creating the need for an adjusting entry. This is when the bad debt...
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This note was uploaded on 11/09/2010 for the course BUSINESS 2257 taught by Professor Iandunn during the Fall '10 term at UWO.

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Ar and notes receivable - 2009-09-091ACCOUNTS...

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