Valuing Accounts Receivables (AR) AR Are reported as a Current Asset on the balance sheet. Sales on account raise the possibility of accounts not being collected. AR Are reported at the amount the company thinks they will be able to collect or Net Realizable Cash Value (NRV). AR Valuation can be difficult because an unknown amount of receivables will become uncollectible. Accounts Receivable Accounts Receivable Valuation on BS V aluation on BS
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Current-period Net Credit Salesx the pre-determined percentageBad Debts Expense (for the period)
SO 3 Distinguish between the methods and bases companiesSO 3 Distinguish between the methods and bases companiesuse to value accounts receivable.use to value accounts receivable.
Accounts ReceivableAccounts Receivable ADA (% of Sales)ADA (% of Sales)
When the company makes the adjusting entry, itdisregards the existing balance in Allowance for DoubtfulAccounts.
SO 3 Distinguish between the methods and bases companiesSO 3 Distinguish between the methods and bases companiesuse to value accounts receivable.use to value accounts receivable.
Accounts ReceivableAccounts Receivable ADA (% of Sales)ADA (% of Sales)
Illustration: If the trial balance shows Allowance forDoubtful Accounts with a credit balance of $528, the companywill make the following adjusting entry.
SO 3 Distinguish between the methods and bases companiesSO 3 Distinguish between the methods and bases companiesuse to value accounts receivable.use to value accounts receivable.
Accounts ReceivableAccounts Receivable ADA (% Receivables)ADA (% Receivables)
Bad Debts Expense 1,700Dec. 31
Allowance for Doubtful Accounts 1,700
P er cen tag e-of-R eceiv abl es
* $2,228 (Desired ADA, based on AR aging schedule)² 528 (Existing credit balance)1,700
Chan Company sells office equipment on September 30, 2010,for $35,000 cash. The office equipment originally cost$72,000 and as of January 1, 2010, had accumulated
depreciation of $42,000. Depreciation for the first 9 monthsof 2010 is $5,250.
1. Record depreciation to date, updating BV (5,250 for Jan - Sept)
2. Eliminate current BV (Asset & Accumulated Depreciation)
3. Recognize any value received (35,000 in Cash; No assets)
Accounting for Current LiabilitiesAccounting for Current Liabilities
SO 3 Expla in th e acco un ting for o th er c urren t l iab il ities .SO 3 Expla in th e acco un ting for o th er c urren t l iab il ities .
Sales Ta x Pa yable Retailer collects tax from customers as sales occur
Periodically remits collections to state (NYS Sales Tax)
Determining Sales T ax Payable1. Sales tax stated as % of the sales price2. Sales Tax is totaled separately or part of total receipts3. If Sales Tax is part of total receipts (NOT separated):
Sales = Cash Receipts / (1 + Sales Tax %)Sales T ax = Total receipts - Sales (as determined above)
Paid-in Capital - total amount of cash and other assets paidin to the corporation by stockholders in exchange for capitalstock
PaidPaid--in Capitalin Capital
PaidPaid--in Capital inin Capital in
Excess of ParExcess of ParAccountAccount
Sources of Owner·s Equity (Corporate Capital)
Common StockCommon StockAccountAccount
Preferred StockPreferred StockAccountAccount
Corporate CapitalCorporate Capital Owners EquityOwners Equity
SO 2 Differen tia te be tw een pa id SO 2 Differen tia te be tw een pa id--in cap ital and re ta ined earn ings .in cap ital and re ta ined earn ings .
1. Money Invested by Owners (Stockholders)2. Money made by corporation
SO 2 Differen tia te be tw een pa id SO 2 Differen tia te be tw een pa id--in cap ital and re ta ined earn ings .in cap ital and re ta ined earn ings .
Re ta ined Earn ings - Net Income a corporation retains forfuture use (Earned but NOT property of/distributable to owners)
ReRe--Issuance of Treasury StockIssuance of Treasury StockAboveCost
E 13-7a Nunez originally issued 200,000 shares of $5 par,common stock for $12.50 per share. On March 1st thecompany re-acquired 50,000 shares for $15 per share.
On July 1st 10,000 shares were re-issued at $17 per share.
NOTE: Re-Issuance of Treasury Stock Increases total Assets &total Stockholders· Equity by $170,000
A corporation does not realize a gain or suffer a loss from stocktransactions with its own stockholders.