LN - receivables (Ch 7)

LN receivables - Ch 7 Receivables(Ch 7 ACCT 401 SP 11 RECEIVABLES 1 Account receivables(current/trade receivables reported at net realizable value

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Ch 7: Receivables (Ch. 7) ACCT 401, SP 11 RECEIVABLES 1. Account receivables (current/trade receivables): reported at net realizable value a. Result from the credit sales of goods or services to customers. b. Are classified as current assets. 2. Long-term receivables (e.g., Notes Receivables or Mortgage Receivables ) : reported at present value / fair market value a. Are classified as noncurrent assets. Part I: ACCOUNT RECEIVABLES 1. Initial recognition – Record the amount due from the customer/debtor. 1) Two issues may complicate initial measurement: A) Trade discounts – a percentage discount of the list price, often given when customers buy in bulk. a. When a trade discount is given, the company should record the receivable and corresponding revenue at __________________________________________. B) Cash or sales discounts – Cash discounts reduce the amount to be paid if payment is made within a specified short period of time. a. i.e., Cecchini sold merchandise for $20,000 with terms 2/10, n/30. b. When a cash/sales discount is given, GAAP allows two methods for the company to record the receivable and corresponding revenue Gross method: sales are originally recorded at the full invoice amount. Sales discounts are recorded only if payment is received within the discount period. Sales discounts taken by customers are treated as contra revenue accounts and are deducted from sales revenue to obtain net sales revenue. Net method: initially recording sales net of the discount. If a cash discount is not taken within the discount period offered, then the amount of the discount is recorded as interest revenue.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Ch 7: Receivables (Ch. 7) ACCT 401, SP 11 2) EXAMPLE 1: On November 1, Cecchini sold merchandise for $20,000 with terms 2/10, n/30. On November 9, the customer sent a check for $13,720 taking advantage of the discount to settle $14,000 of the amount. On November 29, the customer paid the remaining $6,000. Required: Prepare the journal entries to record the transactions if Cecchini uses: (a) the gross method. (b) the net method.
Background image of page 2
ACCT 401, SP 11 2. Valuation – accounts receivable are on the balance sheet at Net Realizable Value (NRV) . Report as “Accounts receivable, net (of allowance).” NRV = the net amount expect to receive in cash =Account receivable – allowance for uncollectible accounts 1) Uncollectible Account Receivable A) There are two methods for recording uncollectible accounts: a) Direct write-off: If uncollectible accounts are immaterial, bad debts are simply recorded as they occur. The basic entry to write-off an uncollectible account: Not GAAP b) Allowance method: Most businesses record an estimate of the bad debt expense by an adjusting entry at the end of the accounting period. The basic entry to write-off an uncollectible account:
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/22/2012 for the course ACCT 401 taught by Professor Winchel during the Spring '10 term at South Carolina.

Page1 / 20

LN receivables - Ch 7 Receivables(Ch 7 ACCT 401 SP 11 RECEIVABLES 1 Account receivables(current/trade receivables reported at net realizable value

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online