ACC 221 1st Edition Lecture 17 Outline of Previous Lecture Section 16 Allowance and Notes Receivable Cash Allowance o Write off entries o Adjusting Entries o System o Reinstating an account Adjusting Entries o Accounts Receivable o Adjusting Allowance Account Note Receivable o Legally Binding Contracts Outline of Current Lecture Section 16 Account Receivables and Sales Calculating net revenue o Discounts returns and allowance Uncollectable Accounts o Allowance v direct write off method Company impact o Collection period and turnover Estimating uncollectable accounts o Percentage of credit sales Current Lecture Section 17 Account Receivables and Sales Calculating net revenue o To calculate net revenue you must take into consideration the discounts returns and allowance Sales returns and allowances are all contra revenue accounts and are subtracted from the total revenue to get the net revenue Uncollectable accounts o Allowance v direct write off methods Direct write off allows us to directly decrease the accounts receivable account once we know that an individual cannot pay the balance owed These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute If the purchase on credit and the realization that the account is now uncollectable occur within the same period this upsets the matching principle within accounting and creates problems for the bad debt expense accounts This would mean that accounts receivable for the period in which it was recorded would be overstated Company impact o Collection period and turnover The collection periods and how many receivables are paid back is a good indication of how well a company is doing If the company is experiencing a high number of people not paying back the money owed they might stop offering credit as readily Estimating uncollectable accounts o Percentage of credit sales Adjust allowance account for current year s credit sales we don t expect to collect rather than adjusting for the percentage of accounts receivable that the company is not expecting to collect
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