From pages 5-1 and 5-3 of the LVN, match the term with its explanation.Put the answers in the right order *The amount of the A/R expected to be collected. * The cost of credit * The amount of the A/R not expected to be collected. * The account recognized when credit sales are recorded. Net Accounts Receivable______Allowance for Uncollectible Accounts_______Bad debt expense______Accounts Receivable______ PART B: Estimating Uncollectible Accounts (valuingAccounts Receivable “A/R")Valuing accounts receivable is important because sometimescredit sales are not collectible.Uncollectible accounts-(bad(accounts receivable) that the company no longer expects todebts)customeraccountscollect.Accounting for Bad DebtsMatching principleàtells us to record the expense (bad debtexpense)-match cost (bad debt expense) with the revenue (credit sale)earned this periodDirect Write-Off Method -This method is not GAAP-Does not do a good job of “matching"-Used for income tax purposes–IRS-Not used for this classAllowance Method is used to estimate the dollar amount ofaccounts receivables deemed to be uncollectible. The allowancemethoduses theaccount "Allowance for uncollectibleaccounts," a contra asset, to value accounts receivable.Allowance for uncollectible accounts (“AUA")(ContraAsset “XA") contra to accounts receivable. The allowance foruncollectible accounts is management's estimate of the dollaramount of accounts receivable the company does not expect tocollect.Net Realizable Value the amount of cash the companyexpects to collect from their accounts receivable. Also knownas Net Accounts Receivable (Net A/R). It is computed by takingtotal accounts receivable and subtracting the allowance foruncollectible accounts. Net A/R = A/R - AUAReporting Accounts on the Financial StatementsEXPENSEAccount receivable Allowance for uncollectible accounts Bad debt expenseASSETCONTRA ASSET20,0002,0001,900Accounts Receivable, net is shown on the balance sheet and isshown at its net realizable value of $18,000. (A/R – AUA = NetA/R)Accounts Receivable (A)|- Allowance for Uncollectible Accounts (XA)Accounts Receivable, net of allowance for uncollectible accounts"net book value" or "net realizable value" or "Net A/R")$20,000(2,000)$18,000Bad Debt Expense shown on the Income Statement withexpenses at $1,900. PART A: Recognizing Accounts ReceivableRevenue Recognition Review from chapter 31. Provide a good or service2. Collection is probable (being realized or realizable)The company will recognize the revenue at the agreed uponprice, review from chapter 4.Accounts Receivables (A/R) (also called trade receivables)-arise from Credit Sales (providing a good or service andallowing the customer to pay later) also known as "sales onaccount."Recording a credit sale (review from chapter 2 and 3)Mow & Grow provides $500 of monthly lawn maintenanceservices for Customer A. Customer A does not pay at the timeservices are rendered.Accounts Receivable (A+)Lawn Maintenance Revenue (R+àSE+)500500Other Receivables-Nontrade receivables (less common)-tax refunds receivable-interest receivable-loans extended to others-Notes receivable (formal credit arrangement)Trade Discount–representsreduction in price foraproducts/services. The purpose of a trade discount is to increasesales (bulk purchases, etc.) or attract new customers. A tradediscount is not an account (will not show on a financialstatement).Sales discounts (Contra Revenue)-reduces the amount thecustomer owes the company if paid within a specific timeperiod. The purpose of a sales discount is to encourage creditcustomers to pay early. Sales discounts only apply to creditsales.2/10, n30Practice:Mow & Grow offers a 20% discount on their $500 monthlylawn maintenance service to new customers for the first monthof service. All customers are provided services on account andare offered a sales discount of 2/10, n30. Customer B takesadvantage of the discount and gets her lawn maintained forJanuary. Mow & Grow records the revenue at the reducedamount ($500 x (1-.20) = $400). Mow & Grow invoicesCustomer B on January 31st and she pays on February 7h.Mow & Grow records the revenue on January 31stAccounts Receivable (A+)Lawn Maintenance Revenue (R+àSE+)T400Mow & Grow records the collection on February 7thCash (A+)Sales discount (XR+àSE-)392Accounts Receivable (A-)400Customer B has paid her account in full. By paying her invoice within 10 days she takes advantage ofthe sales discount, she saves $8, 2% of the invoice amount. (S400 x .02 = $8)

The pages attached provide us with an understanding of how credit transactions are recorded and how…

Answered: From pages 5-1 and 5-3 of the LVN,…

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q