Ch 8 Orion

trade receivables

Accounts receivables

decreases current assets

Net Accounts Receivable will be understated.

Net Accounts Receivable will be overstated

when management estimates the amount of uncollectibles

by dividing 365 days by the accounts receivable turnover ratio

2 times

10 times

13.5 days

25.5 days

Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet.

maker and the payee

The principal of the note plus interest is due on June 4.

It can be transferred to another party by endorsement.

maturity

The principal of the note plus interest is due on June 4th.

charge interest; payment in full

trade receivables

Bad Debt Expense 2,700 Allowance for Doubtful Accounts 2,700

Adams Company originally made an $1,800 purchase then made its return and paid in full within 15 days.

Newman Shoes will record a debit to Bad Debt Expense, whereas Bowman Footwear will record a debit to Allowance for Doubtful Accounts.

A sale to a factor affects two asset accounts and one stockholders' equity account, whereas a sale paid with a national credit card affects one asset account and two stockholders' equity accounts.

A salary advance to an employee, because it is not considered to be an "arm's length" transaction

7.5 times

Cash = debit of $10,600; Notes Receivable = credit of $10,000; Interest Receivable = credit of $200; Interest Revenue = credit of $400

Company 3

Accounts Receivable-Outdoor Haven 3280 Sales Revenue 3280

a necessary risk of doing business on a credit basis

Notes Receivable 10,000 Accounts Receivable 10,000

Notes Recievable 1,000 Accounts Receivable 1,000

A sale to a factor affects two asset accounts and one stockholders' equity account, whereas a sale paid with a national credit card affects one asset account and two stockholders' equity accounts.

10.1% annual interest rate

The normal balance for Allowance for Doubtful Accounts is a credit balance. If the company currently has a credit balance, they will subtract the amount of the credit balance from the expected amount of uncollectible accounts to calculate the adjusting entry. This is Keller Roofing's situation. In contrast, if the company currently has a debit balance, they will add the amount of the debit balance to the expected amount of uncollectible accounts to calculate the adjusting entry. This is Curtis Flooring's situation. Therefore, Curtis Flooring's situation. Therefore, Curtis Flooring will have a larger adjusting entry for their Allowance for Doubtful Accounts account in order to reach $14,000 credit balance.

~Accounts Receivable—Sarah would be credited $125, and Accounts Receivable—Luke would be credited $127.50. Sarah's account would be credited for the full $125. Because Sarah paid within seven *days, the account would be paid with $123.75 cash from Sarah and a $1.25 sales discount ($125 * 1% = $1.25). Because Luke paid after 30 days, his account would be debited with $2.50 in interest ($125 * 2% = $2.50) on day 30. Therefore, on day 36, he would owe $125 + $2.50 = $127.50. If he paid in full with cash, his account would be credited for $127.50.

451,100.89 Dividing 365 days by the average collection period results in accounts receivable turnover of 19.6 times andmultiplying this figure by average accounts receivable of $24,223.50[($28,665 + $19,782) ÷ 2], results in net sales of $451,100.89.

Net Credit Sales Average Net Accout Receivable Company 1 2.6M 198,000 Company 2 150,000 12,000 Company 3 490,000 27,000 Company 4 1.4M 153,000

shorter collection period

credit card company.

Accounts receivable turnover

average collection period in days

liquidity

below

A note receivable represent claims for which formal instrumenst of credit are issured as evidence of the debt. The not normally requires the payment of the pricipal & interest on a specific date.

No, they rarely require the payment

Receivables are frequently classified as accounts receivable, notes receivable, and other receivables. The other choices are incorrect because receivables are not frequently classified as company receivables, employee receivables or general receivables

$686, Because payment is made within the discount period of 10 days, the amount received is $700 ($1000-$300 return) minus the discount of $14 ($700X2%), for a cash amount of $686.

Cash (net) realizable value, Accounts & notes receivable are reported in the current assets section of the balance shet at cash (net) realizable value.

$12,000, The ending balance required in the allowance account is 7.5% X $160,000, or $12,000. Since there is already a balnce of $5000 in Allowance for Doubtful Accounts, the difference of $7000 should be added, resulting in a balance of $12,000.

$32,000, After the write-offs are recorded. Allowance for Doubtful Accounts will have a debit balance of $12,000 ($18,000 credit beginning balance combined with a $30,000 debit for the write-offs). The desired balance, using the percentage-of-receivable basis, is a credit balance of $20,000 ($200,000X10%). In order to have an endign balance of $20,000, the required adjustment to Allowance for Doubtful Accounts is $32,000.

$735,000, The cash realizable value of the accounts receivable is Accounts Receivable ($800,000) less the expected ending balance in Allowance for Doubtful Accounts after adjustments ($65,000)-$735,000.

The retailer must wait to receive payment from the issuer. There is no wait for payment. The retailer receives payment at the time the credit card is accepted from the customer.

~The credit card issuer conducts the credit investigation of the customer. ~The retailer is not involved in the collection process. ~The retailer receives cash more quickly than it would from individual customers.

Cash $48,000 and Service Charge Expense $2000. The entry includes a credit to Sales Revenue for $50,000, a $48,000 debit to Cash, and a debit to Service Charge Expense for $2,000. The other choices are therefore incorrect.

Writing off receivables. Writing off receivables will result in a company failing to collect any money.

$55,000. By crediting Allowance for Doubtful Accounts for $55,000, the new balance will be the required balance of $60,000. This adjusting entry debits Bad Debt Expense for $55,000 & credits Allowance for Doubtful Accounts for $55,000.

$65,000, By crediting Allowance for Doubtful Accounts for $65,000, the new balance will be the required balance of $60,000. This adjusting entry debits Bad Debt Expense for $65,000 and credits Allowance fr Doubtful Accounts for $65,000.

A promissory note is not a negotiable instrument. Promissory notes are negotiable instruments, meaning if sold, the seller can transfer to another party by endorsement.

~The party making the promise to pay is called the maker. ~The party to whom payment is to be made is called the payee ~A promissory not is more liquid than an account receivable.

Notes Receivable 1,000 Accounts Receivable 1,000 On the date Michael accepts the note, Notes, Receivable is debited for $1,000 and Accounts Receivable is credited for $1,000. Interest is accrued only with the passage of time.

Cash 10,300 Notes Receivable 10,000 Interest Revenue 300 When Schleis receives payment, it will increase cash, reduce the notes receivable account, and reconize interest earned for the term of the note. Interest = $10,000x9%x120/360=$300. Total cash received = $10,000 + $300 =$10,300

Provide the customer a lengthy payment period to increase the chance of paying. a longer payment period will increase the chances the customer will not pay.

6.4 & 57 days. Accounts receivable turnover = Net sales ($800,000) / average net accounts receivable [($100,000+$150,000)/2]=6.4. The average collection period days = (365/6.4)=57 days.

52 days. Average collection period = # of days in the year (365) / Accounts receivable turnover (7)= 52 days.

Amounts customers owe on account that result from the sale of goods and services. usually receive 30-60 days

Written promise (formal instrument or promissary note) for amount to be received. Also called trade receivables.

Non-trade receivables (outside normal course of business) such as interest, loans to officers, advances to employees, and income taxes refundable.

records a receivable when it performs service on account

records accounts receivable at the point of sale of merchandise on account.

~No matching. ~Receivable not stated at net realizable value. ~Not acceptable for financial reporting.

~Better matching. ~Receivable stated at net realizable value. ~Required by GAAP.

A note is honored when its maker pays it in full at its maturity date.

A dishonored note is not paid in full at maturity. Dishonored note receivable is no longer negotiable.

~Determine to whom to extend credit. ~Establish a payment period. ~Monitor collections. ~Evaluate the liquidity of receivables. ~Accelerate cash receipts from receivables when necessary.

~If the credit policy is too tight, you will lose sales. ~If the credit policy is too loose, you may sell to customers who will pay either very late or not at all. ~It is important to check references on potential new customers as well as periodically to check the financial health of continuing customers.

~Assess the liquidity of the receivables. ~Measure the number of times, on average, a company collects receivables during the period.

~Used to assess effectiveness of credit and collection policies. ~Collection period should not exceed credit term period.

~Size. ~Companies may sell receivables because they may be the only reasonable source of cash. ~Billing and collection are often time-consuming and costly

Net Credit Sales / Average Net Accounts Receivable

365 / Accounts Receivable Turnover