Accounting chapter 7

the expected proceeds from converting an asset into cash

realizable value

A company's A/R balance at its December 31 year-end is $489,300, and its ADA has a DEBIT balance of $554 before year-end adjustment. Its net sales are $1,300,00. It estimates that 6% of outstanding A/R are uncollectible. What amount of Bad Debts Expense is recorded at December 31?

$29,912 Step 1: $489,300 x .06= $29.358 (balance at year-end x rate) Step 2: $29,358 + $554= $29,912 (Bad debt expense + current balance in ADA) bc $554 is a debit you have to add it to Bad Debt Expense

A company's A/R balance at its December 31 year-end is $125,650, and its ADA has a CREDIT balance of $328 before year-end adjustment. Its net sales are $572,300. It estimates that 4% of outstanding A/R are uncollectible. What amount of Bad Debt Expense is recorded at December 31?

$5026 Bad Debt Expense= sales x rate $5026= 125,650 x .04

a written promise to pay a specified amount of money, usually with interest, either on demand or at a definite future date

promissory note (N/R)

A company receives a $9000, 8%, 60 day note. The maturity value of the note is ______.

$9,120 (principal+interest)

Total interest to be earned on a $7500, 5%, 90 day note is ______.

$93.75

What are the two methods used to account for uncollectible accounts?

1) direct write-off method 2) allowance method

What two advantages does the allowance method have over the direct write-off method?

1. It records estimated bad debts expense in the period when the related sales are recorded. 2. It reports A/R on the balance sheet at the estimated amount of cash to be collected.

What is the formula for finding Allowance for Doubtful Accounts using the Percent of Receivables Method?

A/R x rate= Allowance for Doubtful Accounts * same for aging of receivables method

amounts due from customers for credit sales

Accounts Receivable

If TechCom has $100 of credit card sales with a 4% fee, and its $96 cash is received IMMEDIATELY on deposit, the entry is to ________ cash and credit card expense, and to _______ sales.

DEBIT cash and credit card expense CREDIT sales

The cost of borrowing money for the borrower or the profit from lending money for the lender

Interest

Formula for maturity value?

Principal Amount + Interest= maturity value

Formula for finding interest?

Principal x interest rate x Time= Interest

method of estimating bad debts that uses both past and current receivables information to estimate the allowance amount.

aging of accounts receivable

method that ESTIMATES (based on past experience) the uncollectible accounts from a customer

allowance method

Uncollectible accounts are also called

bad debts

Allowance for doubtful accounts is a _____ _____ account

contra asset

A journal entry using the direct write-off method ______ A/R and ______ bad debt expense to write off the account.

credits A/R and debits bad debt expense

If TechCom must remit electronically the credit card sales receipts to the credit card company and WAIT for the $96 cash payment, the entry on the date of the sale is to ________ Accounts Receivable-credit card co.

debit for $96 **when cash is later received from the credit card company, you debit CASH and credit A/R**

A journal entry using the direct write-off method ______ A/R and ______ bad debt expense to recover a previously written off A/R.

debits A/R and credits bad debt expense

method of accounting for uncollectible accounts that records the loss from an uncollectible A/R when it is determined to be uncollectible

direct write off method

Credit sales are recorded by _________ or _______ Accounts Receivable.

increasing or debiting

One of the two methods of the ALLOWANCE method that assumes that a given percent of a company's receivables is uncollectible.

percent of accounts receivable method (aka balance sheet method)

One of the two methods of the ALLOWANCE method that is based on the idea that a given percent of a company's credit sales for the period is uncollectible

percent of sales method (aka income statement method)

a specified amount of money

principal

What is the formula for finding Bad Debt Expense using the Percent of Sales Method?

sales x rate= bad debt expense