acct test 3 ch. 7
Oral promises of the purchaser to pay for goods and services sold; no interest
A/R
Gross method entry: Sales of $10,000, terms 2/10, n/30
A/R- 10,000 Sales Revenue- 10,000
Journal entry for credit sale of $100
A/R- 100 Sales Revenue- 100
Net method entry: Sales of $10,000, terms 2/10, n/30
A/R- 9800 Sales Revenue- 9800
Brown Furniture has an amount of $150,000 that is still uncollected. Of this amount they estimate $10,000 will be uncollectible. What is the net realizable value?
A/R- Allowance for DA 150,000- 10,000= 140,000
The amount of bad debt expense and the related credit to the allowance account are unaffected by any balance currently existing in the ______ account
Allowance
Bad debt expense does not increase when a write-off occurs; Under the allowance method, companies debit every bad debt write-off to the ________ account rather than to Bad debt expense
Allowance for DA
Journal entry: Write-off of uncollectible accounts for $10
Allowance for DA- 10 A/R- 10
Ex. Assume the financial vice president of Brown Furniture authorizes a write-off of $1,000 balance owed by Randall Co. on March 1, 2015. The entry to record this write is:
Allowance for DA- 1000 A/R- 1000
When companies write off a specific account, they debit actual uncollectibles to _____ and credit _______
Allowance for DA; A/R
% of Sales--- % times Sales=
Bad Debt Expense
Companies record credit losses as debits to _______
Bad Debt Expense
Ex. Assume Brown Furniture has credit sales of $1,800,000 in 2014. Of this amount, $150,000 remains uncollected at December 31. The credit manages estimates that $10,000 of these sales will be uncollectible. What is the adjusting entry to record the estimated uncollectible?
Bad Debt Expense- 10,000 Allowance for Doubtful Account- 10,000
Journal entry: adjustment of $15 for estimated Bad-debts
Bad debt expense- 15 Allowance for Doubtful Accounts- 15
Ex. Wilson Co. reports that the Allowance account has an end balance of $37,650 for this year and the Allowance account has a CREDIT balance of $800 before adjustment. What is the journal entry:
Bad debt expense- 36850 Allow DA - 36850
Ex. Wilson Co. reports that the Allowance account has an end balance of $37,650 for this year and the Allowance account has a DEBIT balance of $200 before adjustment. What is the journal entry:
Bad debt expense- 37,850 Allow DA- 37,850
Ex. Gonzales Company concludes that 1% of net credit sales will become uncollectible. Net credit sales for 2014 are $800,000. The adjusting entry is:
Bad debt expense- 8000 Allowance for DA- 8000
Companies debit estimated uncollectibles to _____ and credit them to ________
Bad debt expense; Allowance for Doubtful Accounts (contra asset account)
Allowance for Doubtful Accounts is put on the _____
Balance sheet
% of Recievables--- % times Receivables=
Balance you want
When companies write a check for more cash than they have in their cash account
Bank Overdraft
Change funds
Cash
Free from all restrictions
Cash
Most liquid asset Standard medium of exchange Basis for measuring and accounting for all items Current asset Unproductive
Cash
Petty Cash
Cash
coin, currency, available funds on deposit at the bank, money orders, certified checks, cashier's checks, personal checks, bank drafts and savings accounts.
Cash
Almost risk free securities
Cash Equivalents
Generally, only investments with original maturities of three months or less qualify under these conditions
Cash Equivalents
Short-term, highly liquid investments that are both readily convertible to cash, and so near their maturity that they present insignificant risk of changes in interest rates/value.
Cash Equivalents
Examples of this are treasury bills, commercial paper, and money market funds
Cash Equivalents/Temprary Investments
Commercial paper
Cash and Cash Equiv
Treasury Bills
Cash and Cash Equiv
Journal entry: collected $333 on account
Cash- 333 A/R- 333
Net method entry: Payment on $4,000 of sales received within discount period (Sales of $10,000, terms 2/10, n/30)
Cash- 3920 A/R- 3920
Gross method entry: Payment on $4,000 of sales received within discount period (Sales of $10,000, terms 2/10, n/30)
Cash- 3920 Sales Discount- 80 A/R- 4000
Journal entry: Company decided that the amount of cash in petty cash fund is excessive by $50m it lowers the fund balance as follows
Cash- 50 Petty Cash- 50
Gross method entry: Payment on $6,000 of sales received after discount period
Cash- 6000 A/R- 6000
Net method entry: Payment on $6,000 of sales received after discount period
Cash-6000 A/R- 5880 Sales Discount Forfeited- 120
Reporting of receivables involves:
Classification and valuation on the balance sheet
Difference between amount on deposit per company records and the amount of cash collected per bank records; this gets smaller and smaller because of online bank
Collection float
Amount required to be maintained in checking/savings accounts by financial institutions
Compensating balances
Restricted cash is either recorder as a _____ asset or a _____ asset depending on how long you are holding it for
Current asset or long-term investment
Receivables are classified as _____ or _______
Current assets or long-term investments
A bank overdraft is considered a ______ _____
Current liability
Bank overdraft
Current liability
A company makes two entries to record the recovery of a bad debt by reversing the entry made in writing off the account which reinstates the customer's account and journalizes the collection. The two entries are:
Debit A/R Credit Allow for DA Debit Cash Credit A/R
Reconciling items include:
Deposits in transit, outstanding checks, bank charges and credits, bank or deposited error
A/R- 1000 Allowance for DA- 1000 Cash- 1000 A/R- 1000
Ex. On July 1, 2015, Randall Co. pays the $1,000 amount that Brown had written off on March 1. The entry is:
T/F Savings accounts are not considered cash
FALSE
Cash, receivables, and short-term investments are primary liquid assets and are known as ______ ______
Financial Assets
Principal bank account
General checking account
Record sale at actual selling price; recognize discounts that are taken
Gross Method
Under this method, companies recognize sales discounts only when they receive payment within the discount period; income statement shows sales discounts as a deduction from sales to arrive at net sales
Gross method
Limited purpose bank accounts
Imprest bank accounts
Use a financial institution to collect money on company's behalf
Lockbox accounts
The person who promises to pay a certain amount; the borrower
Maker
checking account
Money market funds that prove _____ ______ privileges are usually classified as cash
Written promises to pay a sum of money on a specified future date; always interest
N/R
Does GAAP require the use of cash equivalents?
NO
Record sale at net amount (selling price- cash discount); recognize discounts that are forfeited
Net Method
The primary objective of percentage of outstanding receivables method for financial statement purposes is to report receivables in the balance sheet at ________
Net realizable value
Companies value and report short-term receivables at ______
Net realizable value (the net amount they expect to receive in cash)
Journal entry: Petty cash custodian obtains signed receipts from one individual for $50 to whom he or she pays cash
No entry
Banks will _____ against other cash accounts only when available cash is present in another account with the same bank where the overdraft occurred
Offset
Cash Discount Forfeited is reported under ____
Other Revenue
If using net method, a company considers Sales Discounts Forfeited as ________ ______ on income statement
Other Revenue
Two types of bases used for Allowance Method:
Percentage of Sales and Percentage of Recievables
The _________ basis produces the better estimate of net realizable value-- a balance sheet viewpoints
Percentage of receivables
The ______ method is not affected by what is in the allowance account where as the _____ method is affected by what is in the allowance account
Percentage- of - Sales; Percentage of Receivables
Percentage based upon past experience and anticipate credit policy; any existing balance in Allowance for Doubtful Accounts is ignored
Percentage- of- Sales
Not matching; reports receivables at realizable value
Percentage-of-receivables
The _______ basis results in a better matching of expenses with revenues-- an income statement viewpoint
Percentage-of-sales
This is used for small amounts of miscellaneous expenses
Petty Cash
Journal entry: $300 transfer of funds to petty cash
Petty Cash-300 Cash-300
A company should measure receivables in terms of their _____ _____
Present value
Postdated checks and I.O.U.s
Receivables
Travel Advances
Receivables
Schedule that explains differences between the bank's and the company's records of cash
Reconciliation of Bank Balances
Petty cash transactions are not recorded until the fund is ___________
Reimbursed
_______ ______ is segregated from regular cash
Restricted Cash
Examples of this are for plant expansion, retirement of long-term debt and compensating balances
Restricted Cash- long-term
Compensating balances is considered ________ _____
Restricted cash
Certificate of Deposit
Short term investment
If an asset is not cash and is short-term in nature it should be reported as a _______ ______
Temporary Investment
Money-market funds
Temporary Investment
The ______ method fails to record expenses in the same period as associated revenues and does not result in receivables being stated at net realizable value on the balance sheet
The direct write-off method
Two methods are used in account for uncollectible accounts:
The direct write-off method and the allowance method
Reductions from the list price to determine actual selling prices; trade discount not recognized in the account records
Trade discounts
Receivables are further classified in the balance sheet as either _____ or ______ receivables
Trade or Non-trade
When companies have exhausted all means of collecting a past-due account and collection appears impossible, the company should _________ the account
Write-off
The _____ method of account for bad debts involves estimating uncollectible accounts at the end of each period and ensures that companies state receivables on the balance sheet at their net realizable value
allowance
Write-offs are recorded ______ a year
as often as needed
The write-off of a bad debt and the recovery of a bad debt only affects the _________ accounts
balance sheet
Negotiable instruments such as money orders, certified checks, cashier;s checksum personal check and bank drafts are also viewed as ____
cash
Cash consists of _____, _____, and available ______ on deposit at the bank
coin, currency, funds
Allowance for DA increases with a _______ and decreases with a ____
credit; debit
Bad Debt Expense Adustment is made _____ a year
once
Office supplies/prepaid expense
postage stamps on hand
Net realizable method is:
the net amount the company expects to receive in cash
Petty Cash- no journal entry except for when:
transferring cash to petty cash account and when replenishing fund
