Chapter 6 Part II - __ tmn_ :98 can .mmEmZmomm .mscm>mm...

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Unformatted text preview: __ tmn_ :98 can .mmEmZmomm .mscm>mm mmfim mchamm m $320 Accounts Receivable Beginning Balance Sales on account Collections on account Write-offs 4—— #2 Ending Balance Allowance for Doubtful Accounts Beginning Balance Bad Debt adjusting entry <— #1 #2 ——————> Write—Offs Ending Balance Bad Debt Expense 0 #1 —> Bad Debt Ad'ustin Ent Ending Balance before closing entry —-————————————————-—_—_—__—_——_—_ #1 Adjusting entry at the end of the period (ex. month or year): Bad Debt Expense 1,000 Allowance for Doubtful Accounts 1,000 #2 Entry made when it is determined a customer's account will never be collected: Allowance for Doubtful Accounts 1,200 Accounts Receivable - ABC Corp 1,200 What happens to Net Income when the adjusting entry is made at the end of the month? What happens to Assets when the adjusting entry is made at the end of the month? What happens to Net Income when an account is determined to be uncollectible and written off? What happens to Assets when an account is determined to be uncollectible and written off? M Now, how do we calculate the Bad Debt adjusting entry? There are 2 ways ..... .. Percentage of Credit Sales Method Accounts Receivable Beginning Balance Sales on account Collections on account Write—offs Ending Balance Allowance for Doubtful Accounts Beginning Balance Bad Debt adjusting entry Write-offs Ending Balance Bad Debt Ex ense Bad Debt Ad'ustin Ending Balance before closing entry Credit Sales 1,000,000 times Bad Debt Loss Rate (.5%) 0.5% Bad Debt Expense 5,000 ————-———I————————-—-——u———_—- Adjusting entry at the end of the period (ex. month or year): Bad Debt Expense Allowance for Doubtful Accounts Entry made when it is determined a customer's account will never be collected: Allowance for Doubtful Accounts 1,200 Accounts Receivable - ABC Corp 1,200 Estimating Bad Debts Expense using the percentage of credit sales method only effects the adjusting entryl! It has no effect on writing off an account. Aging of Accounts Receivable Method Accounts Receivable Beginning Balance Sales on account Collections on account Write-offs Ending Balance Allowance for Doubtful Accounts Beginning Balance Bad Debt adjusting entry Write-offs Ending Balance Bad Debt Expense 0 Bad Debt Ad‘ustin Ent Ending Balance before closing entry —_-_-—-———————_._—_._________ Example - At the end of the month Accounts Receivable is $800,000. At the end of the month, after write-offs but before the adjusting entry is made, Allowance for Doubtful Accounts is $30,000. Estimated Estimated Total Uncollectible Age % Uncollectible A/R Accounts Not yet due 2% 700,000 14,000 0-90 days past due 18% 80,000 14,400 Over 90 days past due 40% 20,000 8,000 800,000 36,400 $36,400 is what the ending balance of Allowance for Doubtfull Accounts should be. Allowance for Doubtful Accounts Beginning Balance Bad Debt adjusting entry Write-offs Ending Balance Allowance for Doubtful Accounts 30,000 Bad Debt adjusting entry Adjusting entry at the end of the period (ex. month or year): Bad Debt Expense Allowance for Doubtful Accounts Entry made when it is determined a customer's account will never be collected: Allowance for Doubtful Accounts 1,200 Accounts Receivable - ABC Corp 1,200 -——-———_—_—_—_—_ Estimating Bad Debts Expense using the Aging of Accounts Receivable method only effects the adjusting entryl! it has no effect on writing off an account. AmEsooo< 3330 Lou, mocm>>o=< mmm_ m\<v .E:oE< 52 9: w_ m? .6 m2m> mEmszmm 52 .m ammmmbmn : $8 26: $3905 wEsooo< 5.5300 Lou, mocm30=< mmov >>oI .v AmEsooo< :53on Lou, mocm>>0=< Ezooom 9: mm: 30> mmzmomnv .mQOIFME moz<>>0j< 8:8 9m mnofimE m2 .6 m:_m< ccm wmfim :85 *0 mmficmema 50m .m .538 m_ Esooom cm to mEE>> .N .bEm 9: 93:28 30> Bo; mmcmco B nmmc 30> <52 02 Lo :9: 03 95% wtfiw mHmEzmm 50> : .mEsEmm cm 2 $5 mamman 3ng 9mm 9i 9 263mm Em. @5523 $38 8m Trial Balance Debit Credit Cash 30,000 Accounts Receivable 40,000 Allowance for Doubtful Accounts 1,000 Property, Plant, and Equipment 120,000 Accumulated Depreciation — P,P,& E 50,000 Accounts Payable 35,000 Notes Payable 30,000 Contributed Capital 20,000 Retained Earnings 32,000 Sales 100,000 Credit Card discounts 1,000 Sales discounts 2,000 Returns and Allowances 4,000 COGS 50,000 Advertising Expense 5,000 Utility Expense 15,000 Bad Debts Expense 1,000 268,000 268,000 Prepare the Income Statement. 3. indicate a separate line for Gross Profit b. Show revenue as Net Sales (this should be your first line) Prepare the Balance Sheet a. Report Accounts Receivable at the net book value. b. Report PP&E at the net book value. 2 E E E me>rz .$DC®>®._ O: H meo .UCJOLN meo LOSE ®>ML UrCOU 30> mgzw mxm_>_ wm_ocm9mEm 8685:: .o 8:52 ESE: .n 3%: 9szon E250 .m “69.: O”— ®E®=G>m m_ meo LODOCG mgzm mxw_>_ EmEEEm >>o_n_ cmmo .r EmEmmmcmE cmmo .2359» 95.8% 53 :9: 52m; #2 m m_ 3me 30> 2m: 8 :8ng 950% m @53ng =me 2 52m: : mme B m_ :8 m_o;>>.:m5£o >522 - mxoon w.>:mQEoo 9: co wEsooom :80 9: 5:5 mEoomL v.ch >EEOE m__ocoomm - xomzo m gym 9 mm; :8th 95 SE: 222 - mxomco vemnEscAzm - .xcmn E :98 w:moam_u L6 bEm mEoomL 0E5 cowgma $88 m5 5: m_ :98 38:8 0E5 cowhmm - $330 US cozmfiamm zmmo mc_Em:mm._mm ...
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This note was uploaded on 04/07/2008 for the course ACC 311 taught by Professor Charrier during the Fall '08 term at University of Texas at Austin.

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Chapter 6 Part II - __ tmn_ :98 can .mmEmZmomm .mscm>mm...

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