9. The closing process serves two purposes: Transfer net income (or loss) and dividends to Retained Earnings. Establish zero balances in all income statement and dividend accounts. 10.The amount credited (or debited) to Retained Earnings in the first journal entry must equal Net Income (or Net Loss) on the Income Statement. Chapter 8 receivables, bad debt expense, and interest revenue 1. Allowance method ( dr bad debt expense : + E, - SE ; cr allowance for doubtful ac- counts : + xA , - A ) : An accounting method that reduces accounts receivable (as well as net income) for an estimate of uncollectible accounts (bad debts). - record the estimated bad debts in the period credit sales occur. - Remove (write off) specific customer balances when they are known to be uncol- lectible. 2. Bad debt expense : Reports t he estimated amount of this period's credit sales that customers will fail to pay. 3. Removing the uncollectible account and a corresponding amount from the al- lowance is called a write-off . (dr allowance for doubtful accounts : - xA , + A ; cr ac- count receivable : -A ) - a write- off does not affect income statement accounts - The purpose of writing off some or all of a customer's account balance is to remove amounts that are known with near certainty to have no chance of collection. 3. Percentage of credit sales method : estimates bad debts based on the historical per- centage of sales that lead to bad debt losses. Also called the income statement ap- proach. Bad debt expense this month= credit sales this month× bad debt loss rate 4. Aging of accounts receivable method : estimates uncollectible accounts based on the age of each account receivable. Also called the balance sheet approach. ( dr bad debt ex- pense : + E, - SE ; cr allowance for doubtful accounts : + xA , - A ) 5. Interest ( I ) = principal ( p ) × Interest rate ( R ) × time ( T ) 6. Except for banks, interest ( revenue ) ( +R ,+ SE) is considered a peripheral l source of revenue, so it is reported on the income statement immediately following the In- come from Operations subtotal. 7. Receivables turnover : The process of selling and collecting on account. The receiv- ables turnover ratio determines the average number of times this process occurs dur- ing the period.
8. Days to collect : A measure of the average number of days from the time a sale is made on account to the time it is collected. 9. Receivables turnover ratio = net sales revenue / average net receivable [ average net receivable = 1/2 × ( 前一年 account receivable + 本年 account receivable ) ] Days to collect = 365 / receivables turnover ratio - The number of times receivables turn over during the period - A higher ratio means faster (better) turnover - Average number of days from sale on account to collection - A higher number means a longer (worse) time to collect 10. Factoring : an arrangement where receivables are sold to another company ( called a factor ) for immediate cash ( minus a factoring fee ) Chapter 9 long-lived tangible and intangible assets 1. Long-lived assets : Resources owned by a business that enable it to produce the goods or services that are sold to customers. This class of assets includes two major types : tangible ( fixed assets ) and intangible.
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- Balance Sheet, Generally Accepted Accounting Principles, Dr ↑, Disposal of Tangible Assets, pay supplier