Nguyên lý kế toán - Chapter 8: Reporting and interpreting receivables, bad debt expense, and interest revenue

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinChapter 8Reporting and Interpreting Receivables, Bad Debt Expense, and Interest RevenuePowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Fred Phillips, Ph.D., CARecord sales on accountdr Accounts Receivable cr Sales RevenueBalance SheetCashAccounts ReceivableInventory Income StatementSales RevenueCost of Goods SoldGross ProfitBad debt knownAccounts Receivable and Bad DebtsJan. 18-3Record sales on accountdr Accounts Receivable cr Sales RevenueBalance SheetCashAccounts ReceivableInventory Income StatementSales RevenueCost of Goods SoldGross Profit Bad debt knownBalance SheetCashAccounts ReceivableLess: Allowance for Doubtful AccountsAccounts Receivable, NetInventory Income StatementSales RevenueCost of Goods SoldGross Profit Bad Debt ExpenseAccounts Receivable and Bad DebtsRecord estimate of bad debtsJan. 1Jan. 31dr Bad Debt Expense (+E, -SE) cr Allowance for Doubtful Accounts (+xA, -A)8-4Record sales on accountdr Accounts Receivable cr Sales RevenueBalance SheetCashAccounts ReceivableInventory Bad debt knownBalance SheetCashAccounts ReceivableLess: Allowance for Doubtful AccountsAccounts Receivable, NetInventory Accounts Receivable and Bad DebtsRecord estimate of bad debtsJan. 1Jan. 31dr Bad Debt Expense (+E, -SE) cr Allowance for Doubtful Accounts (+xA, -A)dr Allowance for Doubtful Accounts (-xA) cr Accounts Receivable(-A)8-5Allowance MethodThe allowance method follows a two-step process, described below:Make an end-of-period adjustment to record the estimated bad debts in the period credit sales occur.Remove (“write off”) specific customer balances when they are known to be uncollectible.8-62. Remove (Write-off) Specific Customer Balances8-7Methods for Estimating Bad DebtsThere are two acceptable methods of estimating the bad debts in a given period.Percentage of Credit Sales Method.Aging of Accounts Receivable.Simpler to apply.More accurate8-8Percentage of Credit Sales MethodThe percentage of credit sales method estimates bad debt expense by multiplying the historical percentage of bad debt losses by the current period’s credit sales.Net credit sales for the period× Historical bad debt loss rate= Bad debt expense of the period.8-9Aging of Accounts ReceivableWhile the percentage of credit sales method focuses on estimating Bad Debt Expense (income statement approach) for the period, the aging of accounts receivable method focuses on estimating the ending balance in the Allowance for Doubtful Accounts (balance sheet approach).The aging method gets its name because it is based on the “age” of each amount in Accounts Receivable at the end of the period. The older and more overdue an account receivable becomes, the less likely it is to be collectible.8-10Other IssuesLet’s assume that Skechers collects the $800 from Fast Footwear that was previously written off. This recovery would be recorded with the following journal entries:(1) Reverse the write-off.(2) Record the collection.8-11Calculating InterestInterest (I) = Principal (P) × Interest Rate (R) × Time (T)The time period forinterest calculationThe amount of thenote receivableSee if you can calculate the interest below using your calculator.The annual interest ratecharged on the note8-12Recording Notes Receivable and Interest RevenueThe four key events that occur with any note receivable are:1234Date of Note Receivable November 1, 2009Annual Interest Rate 6%Amount of the Note $100,000Maturity Date of Note October 31, 2010Year End of Company December 31, 20098-13Receivables Turnover AnalysisThe receivables turnover ratio indicates how many times, on average, this process of selling and collecting is repeated during the period. The higher the ratio, the faster the collection of receivables.Rather than evaluate the number of times accounts receivable turn over, some people find it easier to think in terms of the number of days to collect receivablese (called days to collect).8-14Direct Write-Off MethodOn October 13, 2009, we sold merchandise on account to Fast Footwear for $1,000. On February 1, 2010, Fast Footwear declared bankruptcy and had made no payments toward the $1,000 balance in its account receivable.2RecordFebruary 1, 20098-15End of Chapter 8