BMGT 220 Chapter 08

BMGT 220 Chapter 08 - Financial Accounting Seventh Edition...

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Slide 8-1 Accounting for Receivables Financial Accounting, Seventh Edition Chapter 8
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Slide 8-2 Amounts due from individuals and other companies that are expected to be collected in cash. Amounts owed by customers that result from the sale of goods and services. Accounts Receivable Types of Receivables Claims for which formal instruments of credit are issued as proof of debt . “Nontrade” (interest, loans to officers, advances to employees, and income taxes refundable). Notes Receivable Other Receivables
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Slide 8-3 Three accounting issues: 1. Recognizing accounts receivable. 2. Valuing accounts receivable. 3. Disposing of accounts receivable. Accounts Receivable
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Slide 8-4 Illustration:   As s um e  tha t o n O c to b e r 1, 2011, UMD C o m pa ny  s e lls  m e rc ha ndis e  o n a c c o unt to  Ja c k C o m pa ny fo r $1,000, with  te rm s  1/10, n/30.  Pre pa re  the  jo urna l e ntry to  re c o rd this   tra ns a c tio n o n the  b o o ks  o f UMD C o m pa ny. Recognizing Accounts Receivable
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Slide 8-5 Illustration:   O n O c to b e r 5, Ja c k re turns  m e rc ha ndis e  wo rth $100  to  UMD C o m pa ny.  Recognizing Accounts Receivable Illustration:   O n O c t 10, UMD C o m pa ny re c e ive s  pa ym e nt fro m Ja c k C o m pa ny fo r the  b a la nc e  due .
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Slide 8-6 Valuing Accounts Receivables Are  re po rte d a s  a  c urre nt a s s e t o n the  b a la nc e  s he e t. Are  re po rte d a t the  a m o unt the  c o m pa ny thinks  the y will  b e  a b le  to  c o lle c t. S a le s  o n a c c o unt ra is e  the  po s s ib ility o f a c c o unts  no t  b e ing  c o lle c te d.  Va lua tio n c a n b e  diffic ult b e c a us e  a n unkno wn a m o unt o f  re c e iva b le s  will b e c o m e  unc o lle c tib le . Accounts Receivable
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Slide 8-7 Some customers may not pay their account. Uncollectible amounts are referred to as bad debts. When an account receivable becomes uncollectible, a firm incurs a bad debt loss. There are two methods of dealing with bad debts: l Direct Write-Off Method l Allowance Method Valuing Accounts Receivable
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Slide 8-8 Allowance Method Losses are estimated: better matching. receivable stated at net realizable  value. required by GAAP. Methods of Accounting for Uncollectible Accounts Direct Write-Off Theoretically undesirable: no matching. receivable not stated at net realizable value. not acceptable for financial reporting (violates GAAP). Valuing Accounts Receivable
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8-9 On Mar. 1, we determine that we cannot collect $500 from Mr. Bad Guy, a credit customer. Method is objective because bad debt expense is written off at the time it proves to be uncollectible. Direct Write-Off Method
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This note was uploaded on 10/24/2011 for the course BMGT 220 taught by Professor Bulmash during the Spring '08 term at Maryland.

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BMGT 220 Chapter 08 - Financial Accounting Seventh Edition...

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