ACG 2021 - FinancialAccounting
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Transcript ACG 2021 - FinancialAccounting
3 Transactions
› Initial purchase
› Period End Adjustment
› Sale of Investment
Year of Purchase
› Balance Sheet
Market Value of Investment
› Income Statement
Unrealized Gain or Loss
Dividend Revenue (if received)
Year of Sale
› Balance Sheet
Investment balance is removed -0› Income Statement
Gain or Loss on Sale
Based on Ending Market Value from previous period
3 Transactions
› Issuance of Note
› Accrual of Interest
› Collection of Note
Year of Issuance
› Balance Sheet
Note Receivable owed to Company
Interest Receivable
› Income Statement
Interest Revenue for Accrued Interest
Year of Collection
› Balance Sheet
Note Receivable is collected -0 Interest Receivable is collected -0› Income Statement
Interest Revenue for partial period
Represents Amount owed from Customers
Allowance for Doubtful Accounts
› Contra- Asset Account
› Represents Amount we Expect NOT to collect
from Customers
Net Accounts Receivable or Net Realizable
Value
› Accounts Receivable – Allowance for Doubtful
Accounts
› Represents what we Expect to collect
Matching Principle Requires Estimate
› Expense: Amount of Sales NOT collected
Two Estimation Techniques:
› % of Sales
› Aging of Accounts Receivable
One Non-Estimation Technique
› Direct-Write Off
Estimates the amount of the Expense
› Amount of Credit Sales that we expect NOT
to collect
› Once computed (Credit Sales x %)
Uncollectible Accounts Expense xxxxxx
Allowance for Doubtful Accounts
xxxxxxx
Estimates the Amount of Receivables we
expect NOT to collect
› That is a definition of what?
› Once Computed:
You have estimated the ENDING Balance of
the Allowance for Doubtful Accounts
Determine the Beginning Balance
Make the adjustment
Usually
Uncollectible Accounts Expense xxxxxx
Allowance for Doubtful Accounts xxxxxxx
We know with Certainty that we won’t
be collecting a certain account:
Reduce the Allowance Account &
Reduce the Accounts Receivable
Account
› Allowance for Uncollectible Accounts xxxxx
› Accounts Receivable
xxxx
Acid-Test
› Similar to Current Ratio but….
› (Cash + ST Investments + Accounts
Receivable) / Current Liabilities
Day’s Sales in Receivable
› Average Accounts Receivable / Day’s Avg.
Sales