Financial Accounting 8 and 9
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What are accounts receivable?
Amounts customers owe on account, sales made on credit terms
What are Notes Receivable?
A written promise, as evidenced by a formal instrument, for amounts to be received. They normally require the payment of interest and have defined maturity date.
When are Receivables recorded?
A service organization records a receivable when it provides the service. A merchandiser records accounts receivable when the buyer assumes the risk of ownership.
What Contra revenue accounts are associated with sales?
- Ales allowances, granted to customer after the sales transaction has been recorded
- Sales Discounts, for example, 2/10 n/30
- Sales Returns
What is valuing receivable for balance sheet presentation?
This is an impairment of value procedure
What is the only acceptable method Uncollectible accounts?
the allowance method
What is the Percentage of sales technique?
Sometimes called the income statement method, uses credit sales for the period as the base for the calculation
What is the percentage of receivables technique?
Sometimes called the balance sheet method, uses the accounts receivable balance in the general ledger as the base for the calculation.
What is an accounts receivable aging schedule?
a report that classifies each customers balance owed by the length of time they have been unpaid
Once a company writes off a debt as uncollectible, what is done?
The information is given to a collection agency.
What are the sides of the T account in the Allowance accounts?
The credit side of the account represents the estimate. The debit side of the account represents the actual identified customer write down.
How are accounts receivable disposed of?
Some companies sell their receivable rather than establishing internal collecting procedures. This shortens the cast to cash operating cycle. A finance company or bank can buy receivables at a discount from businesses and then collects them is called a factor.
What is a maker of a note receivable?
The party in a promissory note who is making the promise to pay
Who is the payee in the notes receivable?
The party to whom payment of a promissory note is to be made
What is revenue Recognition in notes receivable?
Interest is earned by the passage of time
How is interest computed on a promissory note?
Face value of note x annual interest rate x Time in terms of one year
How is Accounts receivable turnover calculated?
Net credit sales divided by average net accounts receivable
How is the average collection period for receivables calculated?
Days in year divided by accounts receivable turnover
What is the direct write-off method?
A method of accounting for bad debts that expenses specific accounts at the time they are determined to be uncollectible. This is not an acceptable method for external financial reporting. However, it is the required method to be used to determine taxable income
What is considered property, plant and equipment?
Tangible, long term assets used in the operation of the enterprise
What are the costs of long term operating assets?
- Invoice price, net of any cash discount
- Insurance during shipping
- Preparation and installation costs
- Costs incurred to secure title to the asset
Does depreciation reflect the current fair value?
What is tax depreciation?
Modified accelerated cost recovery system, not acceptable for external financial reporting
What is the Plant asset disposals formula?
Proceeds - net book value equals gain or loss on disposal
What intangible assets have indefinite life?
What is the asset turnover ratio calculated?
Net sales divided by average total assets
What are Natural resources?
Consits of deposits of minerals, oil and gas and standing timber. Natural resources represent unrecovered long term inventory
What is the formula for natural resources?
Cost per unit = cost of natural resources divided by number of recoverable units
What is the bookkeeping of Natural resources?
Debit to Inventory Ready for sale, credit to natural resources
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