Kế toán, kiểm toán - Chapter five: Accounting for receivables and inventory cost flow

Chapter FiveAccounting for Receivables and Inventory Cost Flow© 2015 McGraw-Hill Education.Most companies do not expect to collect the full amount (face value) of their accounts receivable. Even carefully screened credit customers sometimes don’t pay their bills. Thenet realizable value of accounts receivable represents the amount of receivables a company estimates it will actually collect. The net realizable value is the face value less an allowance for doubtful accounts.Net Realizable Value of Accounts Receivable 5-2Revenue RecognitionEvent 1: Revenue RecognitionDuring 2014, Allen’s Tutoring Services recognized $14,000 of service revenue earned on account. 5-3Collection for ReceivablesEvent 2: Collection of ReceivablesAllen’s Tutoring Services collected $12,500 cash from accounts receivable in 2014. 5-4Recognizing Uncollectible Account ExpenseEvent 3 Recognizing Uncollectible Accounts ExpenseAllen’s Tutoring Services recognized uncollectible accounts expense for accounts expected to be uncollectible in the future.=Liab.+ Acct. Rec. - Allow. = + Com. Stk. + Retained Earnings Revenue-Expenses= Net Income Cash Flow n/a - 75 = n/a + n/a + (75) n/a-75 =(75) n/a AssetsStockholders' Equity 5-5Financial Statements 5-6Subsequent PeriodEvent 1 Write-Off of an Uncollectible Account ReceivableAllen’s Tutoring Services wrote off $70 of uncollectible accounts receivable. 5-7Revenue RecognitionEvent 2 Revenue RecognitionAllen’s Tutoring Services provided $10,000 of tutoring services on account during 2015. 5-8Collection of Accounts Receivable Event 3 Collection of Accounts ReceivableAllen’s Tutoring Services collected $8,430 cash from accounts receivable. 5-9Recovery of an Uncollectible AccountEvent 4 Recovery of an Uncollectible account: Reinstate ReceivableAllen’s Tutoring Services recovered a receivable that it had previously written off. 5-10Recovery of an Uncollectible AccountEvent 5 Recovery of an Uncollectible Account: Collection of ReceivableAllen’s Tutoring Services recorded collection of the reinstated receivable. 5-11Year-End Adjusting EntriesEvent 6 Adjustment for Recognition of Uncollectible Accounts ExpenseUsing the percent of revenue method, Allen’s Tutoring Services recognized uncollectible accounts expense for 2015.Sales for 201510,000$ Uncollectible percent1.35%Uncollectible amount135$ 5-12Financial Statements 5-13 Percent of Receivables MethodAlternative to percent of revenue method.Focuses on estimating the most accurate amount for the balance sheet account, Allowance for Doubtful Accounts and the Net Realizable Value.The longer an account receivable is outstanding, the less likely it is to be collected.Aging of accounts classifies all receivables by their due date. 5-14Accounts Receivable Aging Schedule 5-15Balance Required in Allowance Account=Liab.+ Acct. Rec. - Allow. = + Com. Stk. + Retained Earnings Revenue-Expenses= Net Income Cash Flow n/a - 3,260 = n/a + n/a + (3,260) n/a-3,260=(3,260) n/a AssetsStockholders' EquityThe ending balance in the Allowance for Doubtful Accounts account should be $3,760. If there is $500 in the allowance account before adjustment, $3,260 would need to be added. The effects on the financial statements would be: 5-16Matching Revenues and Expenses Versus Asset MeasurementThe percent of revenue method, with its focus on determining the uncollectible accountsexpense, is often called the income statement approach.The percent of receivables method, focuses on determining the best estimate of the allowance balance, often called the balance sheet approach.Either approach provides acceptable results. 5-17Characteristics of Notes ReceivableLegally documented with a promissory noteMaker-borrower; responsible for paying note on due datePayee-loans money to maker; expects payment of principal and interestPrincipal-amount of money loanedInterest-economic benefit earned by the payee for loaning the principal to the makerMaturity Date-date on which maker must repay principal and interestCollateral-assets belonging to maker assigned as security to ensure payment of note 5-18Credit Card SalesRather than maintaining a credit granting department, many companies find it cost beneficial to accept credit cards. The credit card company deducts a fee, usually between 2% and 8%, from the gross amount of the sales, and pays the merchant the net balance (gross sales less credit card fee). 5-19Inventory Cost Flow MethodsFour Common Inventory Cost Flow MethodsSpecific IdentificationFirst-in, First-Out (FIFO)Last-in, First-Out (LIFO)Weighted Average 5-20End of Chapter Five 5-21