Accounting chapter 5
Debit: Sales allowance Credit: Acct receivable
What do you debit/credit for a sales allowance?
2% discount if paying in 10 days; 30 days to pay otherwise
2/10, net/30
debit
A _____ balance before adjustment indicates that last year's estimate was too low
credit
A ______ balance before adjustment indicates that last year's estimate of uncollectible accounts may have been too high
Net revenues
A company's total revenues less any discounts, returns, and allowances
Sales discount
Applies if customer makes payment within a specified period of time; incentive to pay quickly
365/receivables turnover ratio
Average collection period
Allowance for uncollectible accounts
Contra asset account representing the amount of accounts receivable that we do not expect to collect
Uncollectible accounts
Customers' accounts that no longer are considered collectible
Balance sheet method (percentage-of-receivables method)
Estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected
Contra accounts
Sales discounts, sales returns, sales allowances, & allowance for uncollectible accounts
Notes receivable
Formal credit arrangements evidenced by a written debt instrument, or note
Credit sales Bad debt expense (subtract) -- gives you the expected profit --
Income statement (partial) -- for a bad debt expense
Service revenue --> full price Less: sales discount --> discount Net service revenues --> SR - SD
Income statement (partial) for a sales discount:
Trade discounts
Indirectly records the sale at the discounted price. Applied to the selling price
Net credit sales/avg accounts receivable
Receivables turnover ratio
Allowance method
Recording an adjustment at the end of each period to allow for the possibility of future uncollectible accounts. The adjustment has the effects of reducing assets and increasing expenses
Direct write-off method
Recording bad debt expense at the time we know the account to be uncollectible. Used for tax purposes but is generally not permitted for financial reporting
Sales allowance
Seller reduces the customer's balance owed or provides at least a partial refund because of some deficiency in the company's product or service
older, less
The _____ the account, the ____ likely it is to be collected (aging method)
Accounts receivable
The amount of cash owed to the company by its customers from the sale of products or services on account
Net realizable value
The amount of cash we expect to collect
Bad debt expense
The amount of the adjustment to the allowance for uncollectible accounts, representing the cost of estimated future bad debts charged to the current period
Net accounts receivable
The difference between total accounts receivable and the allowance for uncollectible accounts
Credit sales
Transfer products and services to a customer today while bearing the risk of collecting payment from that customer in the future
Aging method
Using a higher percentage for "old" accounts than for "new" accounts when estimating uncollectible accounts
Debit: Bad debt expense Credit: Allowance for U.A. (Get # by multiplying by the given %)
What do we debit/credit for a balance sheet method?
Debit: Interest receivable Credit: Interest revenue (get # by price of note x percent x fraction of the year)
What do we debit/credit for accrued interest? (year end adjustment)
Debit: Bad debt expense Credit: Accounts receivable
What do we debit/credit for the direct write-off method?
Debit: Notes receivable Credit: Accounts receivable
What do we debit/credit when we reclassify the accounts receivable?
Debit: Cash Credit: Notes receivable Interest receivable Interest revenue
What do we debit/credit when we record the collection of the note with interest?
Debit: Accounts payable Credit: Notes payable
What do we debit/credit when we record the issuance of the note payable?
Debit: Notes receivable Credit: Cash
What do we debit/credit when we record the loan of cash & acceptance of the note receivable?
Debit: Cash - note receivable + interest rev Credit: Notes receivable - how much note was for Interest Rev - calculate interest
What do we debit/credit when we repay the note and interest in full?
Debit: Acct receivable Credit: Service rev or sales or sales rev When a customer pays - Debit: Cash Credit: Acct receivable
What do you debit/credit for a credit sale? When the customer pays?
Debit: Cash (discounted price) Sales discount Credit: Acct receivable (cash+sales discount)
What do you debit/credit for a sales discount?
Debit: Acct receivable Credit: Service rev
What do you debit/credit for a trade discount?
Debit: Account receivable Credit: Allowance for U.A. Debit: Cash Credit: Account receivable
What do you debit/credit when you reverse account previously written off? & record cash received?
Debit: Allowance for U.A. Credit: Accounts receivable
What do you debit/credit when you're writing off a customer's account as uncollectible?