chapter_8

chapter_8 - 8-1REPORTING AND ANALYZING RECEIVABLESFinancial...

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Unformatted text preview: 8-1REPORTING AND ANALYZING RECEIVABLESFinancial Accounting, Sixth Edition88-2Amounts 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 ReceivableTypes of ReceivablesSO 1 Identify the different types of receivables.Claims for which formal instruments of credit are issuedas proof of debt.Nontrade (interest, loans to officers, advances to employees, and income taxes refundable).Notes ReceivableOther Receivables8-3Two accounting issues:1.Recognizingaccounts receivable.2.Valuingaccounts receivable.Accounts ReceivableSO 2 Explain how accounts receivable are recognized in the accounts.uService organization- records a receivable when it provides service on account. uMerchandiser- records accounts receivable at the point of sale of merchandise on account.Recognizing Accounts Receivable8-4Illustration:Assume that Jordache Co. on July 1, 2012, sells merchandise on account to Polo Company for $1,000 terms 2/10, n/30. Prepare the journal entry to record this transaction on the books of Jordache Co.Accounts receivable1,000Jul. 1Sales revenue1,000Accounts ReceivableSO 2 Explain how accounts receivable are recognized in the accounts.8-5Illustration:On July 5, Polo returns merchandise worth $100 to Jordache Co. Sales returns and allowances100Jul. 5Accounts receivable100Illustration:On July 11, Jordache receives payment fromPolo Company for the balance due.Cash882Jul. 11Sales discounts ($900 x .02)18Accounts receivable900Accounts ReceivableSO 2 Explain how accounts receivable are recognized in the accounts.8-6Valuing Accounts ReceivablesuCurrent asset.uValuation (net realizable value).Uncollectible Accounts ReceivableuSales on account raise the possibility of accounts not being collected. uSeller records losses that result from extending credit as Bad Debts Expense.Accounts ReceivableSO 3 Describe the methods used to account for bad debts.8-7Allowance MethodLosses are estimated:uBetter matching.uReceivable stated at net realizable value.uRequired by GAAP.Methods of Accounting for Uncollectible AccountsDirect Write-OffTheoretically undesirable:uNo matching.uReceivable not stated at net realizable value.uNot acceptable for financial reporting.Valuing Accounts ReceivableSO 3 Describe the methods used to account for bad debts.8-8Valuing Accounts ReceivableAllowance Method for Uncollectible Accounts1.Companies estimateuncollectible accounts receivable. 2.Debit Bad Debts Expenseand credit Allowance for Doubtful Accounts(a contra-asset account) when estimate is made....
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This note was uploaded on 10/27/2011 for the course ACCT 2000 taught by Professor Holmes during the Spring '08 term at LSU.

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chapter_8 - 8-1REPORTING AND ANALYZING RECEIVABLESFinancial...

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