Acct Chap 5 outline

Required a record the events in a statements model

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Required a. Record the events in a statements model under the titles of the affected accounts. Record a zero under each heading not affected by a given event. b. Determine the net realizable value of accounts receivable at the end of each year. Demonstration Problem 5-1: Work Paper, part a. Statements Model, 2011 Event Assets = Liab. + Equity Rev. Exp. =Net Inc. Cash Flow No. Cash + Acct. Rec. + (Al- low) = Ret. Ear. Beg. Bal. -0- + -0- + -0- = -0- + -0- -0- -0- = -0- -0- 1. + 4000 + = + 4000 4000 = 2. 3000 + -3000 + = + = 3. + + -60 = + -60 -60 = 5-2

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Chapter 05 - Accounting for Receivables and Inventory Cost Flow Totals 3,000 + 1,000 + (60) = -0- + 3,940 4,000 – 60 = 3,940 +3,000 NC Demonstration Problem 5-1: Work Paper, part a. Statements Model, 2012 Event Assets = Liab. + Equity Rev. Exp. =Net Inc. Cash Flow No. Cash + Acct. Rec. + (Al- low) = Ret. Ear. Beg. Bal. 3,000 + 1,000 + (60) = -0- + 3,940 -0- -0- = -0- -0- 1. + -40 + +40 = + = 2. + +6,5000 + = + +6,500 +6,50 0 = +6,500 3. 5400 + -5400 + = + = 4. + +5 + -5 = + = 5. +5 + -5 + = + = 6. + + -65 = + -65 -65 = -65 Totals 8,405 + 2,060 + (90) = -0- +10,375 6,500 – 65 = 6435 +5,405 NC Demonstration Problem 5-1: Work paper, part b. Net Realizable Value, 2011: 1000 – 60 = 940 Net Realizable Value, 2012: 2060 – 90 = 1970 Accounting for Notes Receivable – specific type of receivable that customers sign a loan document to repay amount due plus interest over a long period of time. Key terms: Principal – the amount of the money loaned Interest – what the lender earns for loaning money. Rate is usually stated in an annual interest rate Maturity date – when the note must be repaid Collateral – asset that the borrower pledges in the event that the borrower does not re- pay the loan Transactions: Loaning money (\$5,000) (creating the notes receivable) at 5% per year Assets Liabilities Equity Cash Notes receivable 5-3
Chapter 05 - Accounting for Receivables and Inventory Cost Flow - 5,000 + 5,000 Charging interest (Interest = principal x interest rate x time) (5,000) x (.05) x (1 year) = 250 Assets Liabilities Equity Interest receivable Retained earnings +250 +250 interest revenue Interest revenue = interest income NOT sales (so it shows up after operating income on multi-step income statement) Collection of note and interest (pay 5000 + 250 = 5250) Assets Liabilitie s Equity Cash Notes receivable Int. receivable +5250 -5,000 -250 Demonstration Problem 5-2: Notes Receivable and Accrued Interest On November 1, 2011 Mendez Company loaned \$60,000 to Western Corporation. Mendez accepted a promissory note with a five month term and an annual interest rate of 6%. Mendez’s accounting period ends on December 31. Required Determine the amount of interest revenue and the cash inflow from operating activ- ities that Mendez will report in its 2011 and 2012 financial statements. 2011: note goes from 11/1 to 12/31 (2 months) (60,000) x (.06) x (2/12) = 600 2012: note goes from 1/1/11 to 4/1 or 3/31 (3 months) (60,000) x (.06) x (3/12) = 900 Financial statement items & changes for new accounts Income statement: Revenues/Sales Bad debt Expense or uncollectable account expense Interest revenue (interest income) Balance Sheet Accounts receivable LESS allowance for doubtful accounts Notes receivable (can be LT or ST) Interest Receivable 5-4

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Chapter 05 - Accounting for Receivables and Inventory Cost Flow Credit Card Sales Credit card companies (like Visa and American Express) charge a transaction fee and a % of the transaction.
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