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______
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______
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______
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______
Transcribed Image Text:PART B: Estimating Uncollectible Accounts (valuing
Accounts Receivable “A/R")
Valuing accounts receivable is important because sometimes
credit sales are not collectible.
Uncollectible accounts-(bad
(accounts receivable) that the company no longer expects to
debts)
customer
accounts
collect.
Accounting for Bad Debts
Matching principleàtells us to record the expense (bad debt
expense)
-match cost (bad debt expense) with the revenue (credit sale)
earned this period
Direct 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 class
Allowance Method is used to estimate the dollar amount of
accounts receivables deemed to be uncollectible. The allowance
method
uses the
account "Allowance for uncollectible
accounts," a contra asset, to value accounts receivable.
Allowance for uncollectible accounts (“AUA")(Contra
Asset “XA") contra to accounts receivable. The allowance for
uncollectible accounts is management's estimate of the dollar
amount of accounts receivable the company does not expect to
collect.
Net Realizable Value the amount of cash the company
expects to collect from their accounts receivable. Also known
as Net Accounts Receivable (Net A/R). It is computed by taking
total accounts receivable and subtracting the allowance for
uncollectible accounts. Net A/R = A/R - AUA
Reporting Accounts on the Financial Statements
EXPENSE
Account receivable Allowance for uncollectible accounts Bad debt expense
ASSET
CONTRA ASSET
20,000
2,000
1,900
Accounts Receivable, net is shown on the balance sheet and is
shown at its net realizable value of $18,000. (A/R – AUA = Net
A/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)
$18,000
Bad Debt Expense shown on the Income Statement with
expenses at $1,900.
Transcribed Image Text:PART A: Recognizing Accounts Receivable
Revenue Recognition Review from chapter 3
1. Provide a good or service
2. Collection is probable (being realized or realizable)
The company will recognize the revenue at the agreed upon
price, review from chapter 4.
Accounts Receivables (A/R) (also called trade receivables)-
arise from Credit Sales (providing a good or service and
allowing the customer to pay later) also known as "sales on
account."
Recording a credit sale (review from chapter 2 and 3)
Mow & Grow provides $500 of monthly lawn maintenance
services for Customer A. Customer A does not pay at the time
services are rendered.
Accounts Receivable (A+)
Lawn Maintenance Revenue (R+àSE+)
500
500
Other Receivables-Nontrade receivables (less common)
-tax refunds receivable
-interest receivable
-loans extended to others
-Notes receivable (formal credit arrangement)
Trade Discount–represents
reduction in price for
a
products/services. The purpose of a trade discount is to increase
sales (bulk purchases, etc.) or attract new customers. A trade
discount is not an account (will not show on a financial
statement).
Sales discounts (Contra Revenue)-reduces the amount the
customer owes the company if paid within a specific time
period. The purpose of a sales discount is to encourage credit
customers to pay early. Sales discounts only apply to credit
sales.
2/10, n30
Practice:
Mow & Grow offers a 20% discount on their $500 monthly
lawn maintenance service to new customers for the first month
of service. All customers are provided services on account and
are offered a sales discount of 2/10, n30. Customer B takes
advantage of the discount and gets her lawn maintained for
January. Mow & Grow records the revenue at the reduced
amount ($500 x (1-.20) = $400). Mow & Grow invoices
Customer B on January 31st and she pays on February 7h.
Mow & Grow records the revenue on January 31st
Accounts Receivable (A+)
Lawn Maintenance Revenue (R+àSE+)
T400
Mow & Grow records the collection on February 7th
Cash (A+)
Sales discount (XR+àSE-)
392
Accounts Receivable (A-)
400
Customer B has paid her account in full. By paying her invoice within 10 days she takes advantage of
the sales discount, she saves $8, 2% of the invoice amount. (S400 x .02 = $8)
Definition Definition Receivable amount that a company is owed, but did not receive, and which may not be receivable in future.
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