Beruflich Dokumente
Kultur Dokumente
CHAPTER 6
CLASSIFYING RECEIVABLES
Accounts Receivable Credit terms extended to customers Notes Receivable
QUICK CHECK
Ace Hardware receives a 90-day, 10% note for $6,000 dated April 1st from Rabren Construction Company on account. 1) Who is the payee of this note? Ace Hardware 2) Who is the maker/payer? Rabren Construction Company 3) What is the face value of the note? $6,000 4) What is the maturity date? July 1st 5) What is the maturity value of the note? (This is the amount Bills Hardware should receive from the customer in 90 days.) Face x Rate x Time 6,000 x (6,000 x 0.10)/yr Time is 90 days 6,000 + [($600/yr)(3 mon/12 mon)] = 6,000 + (600/4)
= $6,150
CONTINUED
A Sale PMT NR 6,000 = = L + + + SE Revenue 6,000 (R/E) Int Revenue 150 (R/E)
Cash 6,150 =
NR 6,000
Bad Debt Expense and the write-off of uncollectible accounts Two methods are used to record bad debts: Direct Method- The Accounts Receivable account is adjusted directly for bad debts as they occur Allowance Method- Bad debts are estimated each period and a contra receivables account called Allowance for Bad Debts is used.
Bad Debt Expense drives down R/E. We need to reverse that transaction.
IF PAYMENT IS COLLECTED AFTER THE WRITEOFF, THE WRITE-OFF ENTRY IS REVERSED AND THE CASH COLLECTION IS RECORDED
Undo transaction Reverse transaction to get our A/R back on the book
EXPLANATION
A/R 4,200 Bad Debt Expense
= = =
Liabilities
+ + +
10
11
EXAMPLE
Assets Estimate Of Bad Debts = Liabilities + Stockholders Equity R/E (BDE )
~Allowance =
Writeoff Account
A/R = Allowance
A/R
Allowance
<20,000> 5,000 <15,000>
<5,000>
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IF PAYMENT IS COLLECTED AFTER THE WRITEOFF, THE WRITE-OFF ENTRY IS REVERSED AND THE CASH COLLECTION IS RECORDED.
Assume a $5,000 account had been previously written off.
D. Increase Uncollectible Accounts Expense, $11,800; increases Allowance for Doubtful Accounts, $11,800
19
A. $9,500
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CLASSIFICATION OF INVENTORIES
Merchandisers One classification - Merchandise inventory Cost of inventory includes all costs of ownership purchase price transportation costs insurance costs, etc.
MERCHANDISING INVENTORIES
MANUFACTURING INVENTORIES
Actual costs paid to purchase goods (merchandiser) and actual costs to manufacture goods vary over time. So, the cost of the particular units SOLD can be difficult to determine. Q: How do we know which cost to use? A: We use a cost flow assumption!
SPECIFIC IDENTIFICATION
If the merchandise can be easily tied to a specific purchase, the specific identification method can be used. Cost of each unit of merchandise is determined by looking at the purchase price of that particular unit. Only works if there is a unique characteristic of each item that makes it identifiable Example: VIN for an automobile
AVERAGE COST
E 6-14
The units of an item are available for sale during the year as follows: Jan .1 Inventory 27 units @ $120 = 3,240
2/17
7/21 11/23
Purchase
Purchase Purchase
Total Available for Sale:180 total units ~ $26,460 There are 50 units in the physical inventory at 12/31. 1) 2) What is COGS under FIFO? What is ending inventory under FIFO?
3)
4) 5)
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B/S EFFECT
Inventory shows replacement cost
RESULT
Benefit lost in higher future costs
LIFO
AVERAGE