ACC chapter 5
Aging of Receivables method
- Specific accounts are analyzed based on how long they have been outstanding - Balance sheet approach
allowance method
- based on company's past collection experiences - records the estimated Uncollectible-Account Expense
The risk of not collecting receivables can be managed by
- run credit checks - extend credit only to creditworthy customers - separate cash handling and record-keeping - keep a close eye on customers' payment habits - send second and third statements have customers sign agreements for Electronic Fund Transfers
ways to speed up the cash flow of sales
- sales discounts for early payment - emphasize credit card sales - charge interest after a certain time period - adopt more effective credit and collection procedures
Percent of Sales method
-Uncollectible-account expense computed as a percent of revenue -Income statement approach
sales discount example - 2/10, n/30
2% discount if they pay within 10 days not within 10 days, pay full amount
The allowance for uncollectible accounts is a contra account to
Accounts Receivable
FOB(free on board) destination
ownership changes hands and revenue is recognized at the point of delivery to the customer
FOB(free on board) shipping point
ownership changes hands and revenue is recognized when goods leave the shipping dock
net revenue
revenue less discounts & sales returns allowances
net realizable value
the amount of cash the firm expects to collect (Accts receivable less allowance for uncollectible accts)
