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- selling goods or services to another party on credit, right to revieve cash in future from transaaction
- Accounts receiabale
- Notes receivable
ammounts to be collected from customers for sales on credit
account that summarizes related subsidiary accounts
subsidiary ledger showing each customers balance
- longer in term debtor promises to pay by maturaity date
- Maturity date- date the debt must be completly paid off
current asset if within one year long term asset if beyond a year
accounting for uncollectible accounts
direct write off method: records uncollectible accounts expense when specific account is written off.
percent of sales: statement approach, estimates uncollectibles accounts as a percent of sales, calculates bad debt expense, better reflection of matching principle.
aging-of-accounts: balance sheet approch, determine target allowance based on age of actual receivables. calculates ending balance in the allowance account.
writing off uncollectible accounts
when a specific customer account is identified as uncollectible it is written off to the allowance account.
- allowance for uncollectible accounts
- Accounts receivable---andrews
- Accounts receivable---Jones
- wrote off uncollectable debt.
Recovery of account
sometimes a customer will pay the amount owed after the customers account is written off
- two entries needed:
- 1. reverse the uncollectable account
- 2. record the payment.
credit and debit card sales are
- credit and deit card sales are an alternativve form for receiving payment
- two types of credit cards
- - issued by a finacial instituion: visa and mastercard
- - issued by a credit card company: american express, discovery
debit cards: same as cash amount subtraced from bank account
retailers receive cash at time of sale, retailers accepting credit cards pays a fee.
- Two types of fees
- 1. NET: total sale less the processing fee assesed equals the net amount of cash deposited
- 2. gross: total sale is deposited andthe fee is deducted at the end of the month
identifying maturity date
maturity date can be
- stated in terms of number of months
- stated in terms of number of days
by the year: principal x interest x 12/12 = amount of interest
by the month: principal x interest x 9/12= amount of interest
by the day: principal x interest rate x 60/360 = amount of
accruing interest revenue
- Interest reveivable (1,000 x .06 x 3/12)
- Interest revenue
- accrued interest revenue.
accruing interest on maturity date
- Cash (1000 x .06)
- Notes reveivable
- Interest receivable
- interest revenue
- Collected note receivable plus interest.
Days sales in receivables
collection period, its the number of days it takes to collect the average balance of receivables
the shorter the collection period the mroe quickly cash is available
- two steps
- 1. find one days sales
- 2. find days slaes in receivables.