Chapter5_I-1

Chapter5_I-1 - CHAPTER CHAPTER 5 Short-term Investments and Receivables 1 Short-term Investments marketable securities 2 Receivables The direct

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HAPTER 5 CHAPTER 5 Short-term Investments and Receivables 1. Short-term Investments / marketable securities 2. Receivables - The direct write-off method - The allowance method 5-1
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ccounts Receivables Accounts Receivables – A/R reflect the amount owed by customers; /R is classified as current assets. A/R is classified as current assets. – A/R usually are further divided into individual stomer’s accounts which are called the Account customer s accounts, which are called the Account Receivable Subsidiary Ledger. – The general ledger control account shows total receivables from all customers. 5-2
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CCOUNTS RECEIVABLE GENERAL LEDGER ACCOUNTS RECEIVABLE SUDSIDIARY LEDGER Accounts Receivable Aston Bal. 5,000 Harris Bal. 9,000 al 1 000 alazar Bal. 1,000 Salazar Bal. 3,000 Now, A/R starts to bear customers’ names! 5-3
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Problem Related to Credit Sales A Problem Related to Credit Sales • If a company sells on account (or make credit sales), customers do not need to pay cash on the spot. As a result, companies may not be able to collect from all customers in the future. • This chapter is mainly about dealing with the problem that some customers do not pay their bills. pp y 5-4
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n E ample An Example |_______________|_______________|____ Makes inds out that one January 2008 December, 2007 credit sales Finds out that one customer cannot pay n December 1 2007 you and your classmates set up a company On December 1, 2007, you and your classmates set up a company to help people with their financial investment decisions. During December, your company performed service for customers totaling $20,000, which the customers did not need to pay you until the next month (Jan. 2008). Then, in January 2008, you decided to take it easy, and not to work for the entire month. 5-5 How much are service revenues for these two months?
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hat you have and haven’t learnt What you have and haven t learnt … t R i b l 0 000 You have learnt how to record credit sales in December. Accounts Receivable 20,000 Sales Revenue 20,000 Provided financial service on account hat ou have ot arned how to record the What you have not learned is how to record the possibility that some customers would not pay you later. his is the focus of this chapter. 5-6 This is the focus of this chapter.
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ore on the Example New Expense More on the Example – A New Expense Let’s further assume that, on Jan. 5, 2008, you found out that customer Aston would not be able to pay you. He owed you $500. Is the following journal entry correct ? Jan. 5 Bad-debt Expense $500 Accounts Receivable - Aston $500 Wrote off bad account To answer this question, think about the following. How much were your bad-debt expenses for Dec. 2007 and Jan. 2008? 5-7 How much were your net income for these two months?
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et’s Compare the 2 Months’ Results Let s Compare the 2 Months Results hi i f h t j t d d This is a summary of what we just recorded: Dec. 2007 Jan. 2008 ervice Revenue 20 000 Service Revenue $20,000 0 Bad-debt Expense 0 500 NI $20,000 ( 500 ) Compare the above with the following scenario.
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This note was uploaded on 11/27/2011 for the course ACCY 2001-17 taught by Professor Xue during the Fall '11 term at GWU.

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Chapter5_I-1 - CHAPTER CHAPTER 5 Short-term Investments and Receivables 1 Short-term Investments marketable securities 2 Receivables The direct

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