10.6.11 Handout #5 - Chapter 5 Key Terms Concepts Accounts Receivable vs Notes Receivable Accounts Receivable Allowance for Doubtful Accounts Matching

10.6.11 Handout #5 - Chapter 5 Key Terms Concepts Accounts...

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Chapter 5 Key Terms & Concepts Accounts Receivable vs. Notes Receivable Accounts Receivable Allowance for Doubtful Accounts & Matching Principle Uncollectible Accounts Expense (or Bad Debt Expense) Net Realizable Value *Net amount of re Accounts recievable balance - allowance for doubtful accounts = the amount that the company expects to collect Write-off of an Account Receivable Remove the amou Contra account and it will add to the allowances Recovery of an Uncollectible Account Allowance for Doubtful Accounts Methods Percentage of Revenue Method Focus on our cred Percentage of total credit sales during period that the company does not expect to collect Percentage of Receivables Method Focus on balance *Within that 30 day period - Current * 31-60 days outstanding - Over due* How long it has been outstanding* The more time that elaspses means the less likely the payment will be recevied Ratios: Accounts Receivable Turnover (ART) Sales/Account Re The numbe The higher the turnover the better Average Days to Collect Receivables 365/ART Average n Lower the The longer The older the AR balance theless likely it is to be collected Notes Receivable More fomalized… Principal amount = face value of loan …. Interest = economic gain from the loan usually done in average percentage…. Collateral = some kinda of assurance that the loaner gets from the loanee to make sure their money. Features of a Note Receivable Entries to Record Note Receivable Entries to Record Interest on Note Receivable Statement of Cash Flows: Loan or Collection of Principal = Investing Activity Interest Collection = Operating Activity Credit Card Sales Why do companies use credit card sales? Entries to record credit card sales
Example 5-1: Accounting for Uncollectible ReceivablesThe Solo Company was started on January 1, 2010. The following events occurred during 2010 and 2011.20101. Provided $4,000 of services on account.2. Collected $3,000 cash from accounts receivable.3. Estimated uncollectible accounts expense to be 1.5 percent of 2010 credit sales.20111. Wrote off $40 of accounts receivable that were deemed uncollectible.2. Provided $6,500 of services on account.3. Collected $5,400 cash from accounts receivable.4. Received $5 from a bad debt that had been previously written off. Reinstated the account.5. Recorded the $5 cash received from the receivable reinstated in Event No. 4.

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