ch 7 notes - Reporting and Analyzing Receivables I....

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Reporting and Analyzing Receivables I. Accounts receivable A. Separate accounts are maintained for accounts receivable with direct credit and accounts for bad debts from credit sales B. Recognizing accounts receivable 1. Sales on credit (ex. Macy's credit card used at Macy's) a) Debit accounts receivable b) Maintain a separate account for each customer that tracks how much that customer purchases, has already paid and still owes * General ledger and financial accounts continue to have a single account receivable * Separate account information is recorded the accounts receivable ledger with a schedule of accounts receivable c) Recoding * Sales: debit AR and credit sales in the general ledger * Receiving: debit cash and credit AR * Interest owed: debit interest receivable and credit interest revenue d) Advantages of direct credit sales * Grant credit to approved customers * Earn interest on balances not paid * Avoid fees charged by credit card companies 2. Credit card sales a) Sales made by using third party credit cards like Visa b) Advantages * Seller does not have to evaluate each customer's credit standing * Avoids risk of bad debts * Receives cash sooner * Increases sales by giving customer a verity of credit options c) Seller must pay a fee for services provided by the card company unless money is moved using electronic funds transfer d) Recording * Debit cash for sales – credit card expense * Debit credit card expense for service fees
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* Credit sales 3. Installment sales and receivables a) Credit customers make periodic payments over several months b) Sales on these terms create installment accounts receivable which are amounts owed from credit sales for which payment is required in periodic amounts over an extended time period
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ch 7 notes - Reporting and Analyzing Receivables I....

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