Accounts Receivable and Beginning FSA Flashcards
When do companies recognize revenue?
In the 10-K look for Revenue Recognition under notes
What is the account for recording entries for AR with risk of non collection?
Allowance for doubtful accounts (contra-asset)
What is the net realizable value?
Amount of A/R you expect to collect (net)
What is the formula for average daily sales?
Sales/365 days
How do you calculate how many days A/R you have?
2 different choices:
1) sales/365 = average daily sales, then AR balance/average daily sales = days AR
2) sales/AR balance = AR turnover rate, then 365/AR turnover rate = days AR
What is gross margin ratio?
Gross profit/revenues (income statement)
What is profit margin ratio?
Net income/revenues (income statement)
What is ROA?
Return on assets - net income/total assets
What is asset turnover?
Revenues/Total assets (the higher the better - you either need to increase revenues or decrease assets)
What is leverage?
Total assets/shareholders equity
What is the du pont analysis ratio for ROA?
Profit Margin Ratio X Asset Turnover = ROA
Is ROA a factor of efficiency or differentation?
Efficiency - more revenue with less assets
How can you increase your profit margin ratio?
Differentiation, control costs of production, control overhead costs of running the business
What is the installment method of Revenue Recognition?
Doubt of cash collection, revenue is only recognized when cash is received
What are the methods of estimating uncollectible accounts?
Percentage of credit sales method, aging method
How to write off uncollectible accounts?
If you determine customer can’t pay, decrease accounts receivable (10) and reduce balance for uncollectiable accounts (will be positive)
