InClassLectureNotes Chapters 7thru11

InClassLectureNotes Chapters 7thru11 - Chapter 7: Accounts...

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Unformatted text preview: Chapter 7: Accounts Receivable In this chapter you will learn how accounts receivable affect businesses, how they are controlled, accounted for, and reported in financial statements. What are accounts receivable? Sources of Accounts Receivable: How are accounts receivable created? On January 5, a service company provides services to customers and charges them $50,000. The customers are expected to pay the $50,000 to the company on February 4. Show how this event affects the companys resources and sources of resources. Total Resources = Sources of Borrowed Resources + Sources of Owner Invested Resources + Sources of Management Generated Resources Assets = Liabilities + Stockholders Equity Prepare the journal entry to record the January 5 transaction. Date Description Post Ref. Debits Credits Jan. 5 On January 10, a merchandising company provides products to customers and charges them $10,000 which they are expected to pay by February 9. Prepare the journal entry to record the January 10 transaction. Date Description Post Ref. Debits Credits Jan. 10 81 Uses of Accounts Receivable: What is the most important use of accounts receivable? On January 18, a company collects $23,000 from customers for products sold to them in December. Show how this event affects the companys resources and sources of resources. Total Resources = Sources of Borrowed Resources + Sources of Owner Invested Resources + Sources of Management Generated Resources Assets = Liabilities + Stockholders Equity Prepare the journal entry to record the January 18 transaction. Date Description Post Ref. Debits Credits Jan. 18 82 Controlling Accounts Receivable: List two ways accounts receivable are controlled. Analyzing potential credit customers: The Kristen Company has always sold products for cash. Presently the company has sales of $500,000 (option 1). It is considering increasing sales by $30,000 by selling to some customers on credit (option 2). The company expects the products it sells to cost the Kristen Company 55% of the sales prices it charges its customers. It expects its major operating expenses (salaries and wages, utilities, etc.) to be 25% of sales revenue. The company predicts that approximately 2% of its credit customers will not pay for the products they buy. Income taxes expense is expected to be 35% of income before taxes. Complete the following income statements for the Kristen Company. Option 1 Present Operations New Credit Sales Option 2 Expanded Operations Sales $500,000 ________ _ ________ _ Cost of Goods Sold (55% of sales) ________ _ $16,500 ________ _ Gross Profit ________ _ ________ _ $238,500 Operating Expenses Major Operating Expenses (25% of sales) $7,500 ________ _ Uncollectible Accounts Expense (2% of credit sales) $0 ________ _ ________ _ Total Operating Expenses ________ _ ________ _ $133,100 83 Income Before Taxes $100,000 ________ _ ________ _ Income Taxes Expense (35% of income before taxes) ________ _ $1,890 ________ _ Net Income ________...
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This note was uploaded on 10/09/2011 for the course ACCT 60.201 taught by Professor Monty during the Spring '11 term at UMass Lowell.

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InClassLectureNotes Chapters 7thru11 - Chapter 7: Accounts...

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