COMM2010Chapter7

COMM2010Chapter7 - (adjusting entry) and not on an...

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03:52 Chapter 7- Revenue recognition 3 possibilities when revenue can be recognized: - Time of the sale (Accounts receivable; most imp!)  - After sale or contract (Unearned revenue/Advance from customers) - Prior to completion of sale or contract (In certain cases; long term construction  projects) Accounts receivable is divided into: - Gross Accounts Receivable (Control account; sum of what each individual  company owes (100%); B/S does not have this number rather the net) - Net Accounts Receivable (Is reported on the B/S. Also recorded as Bad debt  expense on the income statement. Gross AR – Allowance for Uncollectible  Accounts= Net AR. Takes into account who will not pay but is an estimate of how  many will not be collected because if the company knew who would not pay, they  wouldn’t issue credit in the first place. This is done overall at the end of the year 
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Unformatted text preview: (adjusting entry) and not on an individual basis. Hence it does not decrease in the next year because of more specific individuals paying. However, if you know that a specific customer is not going to pay you, you take action at that time and dont wait until the end of the year. [Not on B/S] (Write offs- Debit- Allowance (decreasing), Credit to Gross AR (decreasing); Net AR stays the same) Note- Allowance for UA is a contra-asset account. Direct Method- Make an estimate of bad debt expense (some % of sales on credit). Indirect Method- Aging analysis- Look at Gross AR and see how old they are to give you the ending balance in the Allowance Account. The older it is, the higher the probability that those people will not pay you. (E.g. Over 90 days, 10 % of sales on credit) 03:52 03:52...
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This note was uploaded on 03/02/2011 for the course COMM 2010 taught by Professor Maryeriksson during the Spring '11 term at UVA.

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COMM2010Chapter7 - (adjusting entry) and not on an...

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