Chapter 7 Cash receivables lecture Flashcards
a discount for early payment
cash discounts
2/10, n/30 or
two-ten, net thirty
stands for
2% discount if paid in 10 days, else the entire balance is due in 30 days
what are the 2 ways to account for cash discounts
- gross methods
- net method
assume customer will not take discount
which of the two ways to account for cash discounts is this?
gross method
assume customer will take discount
which of the two ways to account for cash discounts is this?
net method
- customers return unacceptable mercahndise to seller
- returns that occur in the same period as the original sale
sales returns
customer receives cash or credit for unacceptable merchandise
sales allowances
both return and allocations are
variable considerations
these 3 things are contrac revenues
- sales discounts
- sales returns
- sales allowances
- some customers will not pay their balance of accounts receivable
- use this to reduce the net balance of accounts receivable
allowance for doubtful accounts
net realized value equation
net realized value =
gross accounts receivable balance - allowance for doubtful accounts
- how often receivables are collected during the year
- higher is better
accounts receivable turnover
accounts receivable turnover equation
accounts receivable turnover =
net sales / average net accounts receivables
do the journal entry to move the allowance to the “right” ending amount
Dr. bad debt expense(-SE) XX
Cr. allowance(-A, increase to a contra asset) XX
do the journal entry to write off a bad debt
Dr. allowance (+A) XX
Cr. AR(-A) XX
2 steps to recover an account
(customer account we wrote off ends up paying)
Step 1: reverse the write off
Step 2: collect the cash
do the journal entry to recover an account
Step 1: reverse the write off
Dr. AR (+A) XX
Cr. allowance(-A) XX
Step 2: collect the cash
Dr. cash (+A) XX
Cr. AR(-A) XX
write off does not affect what
- A/R turnover
- net A/R
