chapter9 - CHAPTER 9 Accounting for Receivables ACCT100...

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Chapter 9-1 Accounting for Receivables CHAPTER 9 ACCT100 Autumn 2011 Teresa Chu Chapter 9-2 Types of receivables Accounts receivable s Amounts owed by customers on account from sale of goods or services s Expect to collect within 30 to 60 days Notes receivable s Claims with formal instruments of credit s Expect to collect in 60 to 90 days or longer s Require debtor to pay interest Other receivables s Nontrade receivables (e.g. interest receivable, loans to employees, income taxes refundable, etc.)
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Chapter 9-3 Valuing accounts receivable is sometimes difficult because some receivables will be uncollectible Uncollectible receivables are unavoidable Hence “Bad debts expense” or “ Uncollectible accounts expense” is normal and necessary risk (i.e. operating expense) 2 methods: (1) direct write-off method (2) allowance method Valuing accounts receivable Chapter 9-4 Record bad debts expense when an account is determined to be uncollectible Bad debts expense XX Accounts receivable - ??? XX Report actual losses in income statement and report gross accounts receivable in balance sheet Violate matching if sales and bad debts expense are recorded in different periods Advantage: Simple Disadvantages: Reduce usefulness of F/S Not allowed in GAAP unless bad debts are insignificant Direct write-off method
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Chapter 9-5 Estimate uncollectible accounts at end of each period Adjusting entry: Bad debts expense XX Allowance for doubtful accounts XX “Allowance for doubtful accounts” is a contra-asset a/c Cash (net) realizable value = A/R – allowance Advantages: (1) Better matching in I/S (2) Report
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This note was uploaded on 09/09/2011 for the course ACCT 100 taught by Professor T.chu during the Spring '11 term at University of Macau.

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chapter9 - CHAPTER 9 Accounting for Receivables ACCT100...

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