Exam 4 Study Guide

(5 pages)
Previewing pages 1-2 of actual document.

Exam 4 Study Guide

Overview of Journal Entries and definitions of Days 18-19 of class.


Pages:
5
Type:
Study Guide
School:
University of Alabama
Course:
Ac 310 - Finan Report Analy Bus Activ I
Finan Report Analy Bus Activ I Documents

Unformatted text preview:

AC 310 7th Edition Exam # 3 Study Guide: Days 18 - 19 Day 18 (March 10) Accounting for Accounts Receivable Trade Discounts: percentage reduction from the list price; way to change prices w/o publishing new catalog / disguises real price from competitors Cash Discounts: intended to provide incentive for a quick payment Two ways to record cash discounts: gross method and net method 1. Gross Method: record first journal entry at normal (full) price Day of Sale: DR Accounts Receivable …… 20,000 CR Sales Revenue……………..20,000 Day of Collection (within discount period) DR Cash ………………………………19,600 DR Sales Discount……………………..400 CR Accounts Receivable………20,000 2.Net Method: record first journal entry already assuming they took the discount Day of Sale: DR Accounts Receivable………19,600 CR Sales Revenue……….........19,600 Day of Collection (outside discount period): DR Cash………………………………..20,000 CR Accounts Receivable……..19,600 CR Interest Revenue………………..400 **Difference between the two is the timing of the recognition of discounts not taken Net Realizable Value: amount of cash the company expects to actually collect (Accounts Receivable – End Allowance for Uncollectible Accounts) Bad Debt Expense: cost of granting credit; company faces the risk that customers may not be able to pay them back DR Bad Debt Expense…………………………………... XXX CR Allowance for Uncollectible Accounts………XXXX Allowance for Uncollectible Accounts: contra asset account to accounts receivable Two approaches to deciding bad debt expense: 1.Income Statement Approach Bad debt expense estimated as a percentage of each period’s net credit sales BD Exp.  2% of 1,200,000 = 24,000



View Full Document

Access the best Study Guides, Lecture Notes and Practice Exams