Bài giảng Financial Accounting - Chapter 5: Receivables and Sales

Receivablesand SalesChapter 5 Learning ObjectivesRecognize accounts receivableCalculate net revenues using discounts, returns, and allowancesRecord an allowance for future uncollectible accountsUse the aging method to estimate future uncollectible accountsApply the procedure to write off accounts receivable as uncollectibleLearning ObjectivesContrast the allowance method and direct write-off method when accounting for uncollectible accountsApply the procedure to account for notes receivable, including interest calculationCalculate key ratios investors use to monitor a company’s effectiveness in managing receivablesEstimate uncollectible accounts using the percentage-of-credit-sales methodPart ARecognizing Accounts ReceivableLearning Objective 1Recognize accounts receivableCredit SalesTransfer products and services to a customer today and collecting payment in the futureAlso known as sales on account or services on accountCommon for large business transactionsAccounts ReceivableCash owed to the company by its customers from sales on accountRecorded at the time of the credit saleAlso called trade receivablesOther Types of ReceivablesNontrade receivables: receivables that originate from sources other than customersNotes receivable: formal credit arrangements evidenced by a written debt instrument, or noteLearning Objective 2Calculate net revenues using discounts, returns, and allowancesNet RevenuesNet revenuesA company’s total revenues less any discounts, returns, and allowancesAlso referred to as net salesNetRevenuesSales DiscountsSales Returnsand Allowances−=Sales−Trade DiscountReduced from the list price of a product or serviceNot recognized directlySales Returns and AllowancesContra Revenue AccountOpposite balance to that of its related revenue accountTo keep a separate record of the total revenue earned and reduction due to subsequent sales allowancesSales DiscountReduced from the amount to be paid by a credit customerIf payment is made within a specified period of timeRecognized directlyDiscount terms Eg: 2/10, n/30Part BValuing Accounts ReceivableLearning Objective 3Record an allowance for future uncollectible accountsAllowance MethodAllows for the possibility that some accounts will be uncollectibleCompanies are required to:Estimate future uncollectible accountsRecord estimates in the current yearUncollectible accounts: Customers’ accounts that are no longer considered collectibleReduces assets (accounts receivable)Increases expenses (bad debt expense)Illustration 5.3—The Financial Statement Effects of Accounting for Future Uncollectible AccountsEstimating Uncollectible AccountsPercentage-of-receivables methodBased on the percentage of receivables expected not to be collected Also called the balance sheet methodPercentage-of-credit-sales methodAlso called the income statement methodEstimating Uncollectible AccountsBad Debt Expense: uncollectible accounts expense or provision for doubtful accountsAllowance For Uncollectible Accounts: contra asset account representing the amount of accounts receivable that we do not expect to collectIllustration 5.5—Accounting for Uncollectible Accounts and the Accounts Receivable Portion of the Balance SheetLearning Objective 4Use the aging method to estimate future uncollectible accountsAging of Accounts ReceivableMore accurate than using single percentageConsiders the age of receivablesUsing a higher percentage for older accountsLearning Objective 5Apply the procedure to write off accounts receivable as uncollectibleWriting Off Accounts ReceivableWrite-off has no effect on total amounts reportedNegative effects already recordedLearning Objective 6Contrast the allowance method and direct write-off method when accounting for uncollectible accountsDirect Write-Off MethodRecords bad debt expense when uncollectible account is knownUsed:When uncollectible accounts are not anticipated or are immaterialWhen it’s not possible to reliably estimate uncollectible accounts For tax purposes onlyIllustration 5.12—Comparison of the Allowance Method and the Direct Write-off Method for Recording Uncollectible Accounts Part CNotes ReceivableLearning Objective 7Apply the procedure to account for notes receivable, including interest calculationNotes ReceivableSimilar to accounts receivable but are more formalEvidenced by a written debt instrument, or noteClassified as either current or noncurrent assetInterest CalculationKimzey issued a $10,000 six-month, 12% promissory noteCollection of Notes Receivable & Accrued InterestLearning Objective 8Calculate key ratios investors use to monitor a company’s effectiveness in managing receivablesReceivables Turnover RatioNumber of times the average accounts receivable balance is collectedAverage Collection PeriodNumber of days the average accounts receivable balance is outstanding Learning Objective 9Estimate uncollectible accounts using the percentage-of-credit-sales methodPercentage-of-Credit-SalesMethodEstimates uncollectible accounts based on the percentage of credit salesAdjusts allowance for doubtful accountsAdjusting for Estimates of Uncollectible AccountsEnd of Chapter 5