DOC PREVIEW
OSU ACCTMIS 2300 - 212SEMAccountsReceivablem2

This preview shows page 1-2-3-4 out of 11 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 11 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 11 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 11 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 11 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 11 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

AMIS 212 Introduction to Accounting II Accounts Receivable Module 2 Slide 1 Hi everyone Welcome back Let s continue our discussion of accounts receivable and sales revenue Now in the previous module we focused on the sales revenue Starting here let s talk about accounts receivable AMIS 212 Marc Smith 1 AMIS 212 Introduction to Accounting II Slide 2 We know what accounts receivable are We ve seen them before Accounts receivable represent cash that is owed to the company The company has either sold a good to a customer or provided a service to a customer on account on credit meaning the customer has not paid us as of the time of providing the service or selling the good Now the big issue the main issue we re gonna have in dealing with accounts receivable the big concern that you ve got whenever you sell goods on account is not everyone pays AMIS 212 Marc Smith 2 AMIS 212 Introduction to Accounting II Slide 3 Not all customers are actually going to end up paying us And the question is how are we gonna handle that How are we gonna account for this Well the easy answer which is going to evolve into a more complicated answer The easy answer well we re gonna record an expense Every year we re gonna record what s called bad debt expense And bad debit expense is gonna capture the fact that not everyone pays their bills that there is this risk in selling goods or providing services on account that we will sell something to a customer who won t pay us So the easy answer to the question of how do we account for this is we re gonna record bad debt expense every year Now it gets a little bit more involved cause we need to answer a question and the question is this In what year should your bad debt expense be recorded And I m gonna give you two choices Maybe think about what is AMIS 212 Marc Smith 3 AMIS 212 Introduction to Accounting II the correct answer Do you record the bad debt expense in the same year that you make the sale to the customer or do you record your bad debt expense in the year that your account receivable is determined to be uncollectable Answer that in a second But before we answer that let me take just a minute and go through why these are probably two different years Think about this Let s say here it is October of year one and you sell goods to me And you sell em to me credit terms due in 30 days So 30 days later I haven t paid you You re not going to immediately say gee that customer isn t going to pay you re gonna try to collect So you may send me a letter in the mail you may have somebody call me and say hey don t forget you owe me some money And then you re gonna give me some additional time to pay And after that additional time I still haven t paid you So you might send me another letter Maybe now you re gonna get a collection agency calling me And you re gonna make these efforts you re gonna have these concerted efforts to actually try to collect that money And at some point you re gonna say you know what it s not worth my time anymore I m spending more money than I would have gotten had the customer paid me It s no longer worth my time and effort and money to attempt to collect this cash I m done I ll turn the customer over to the credit bureaus but I m done I will no longer actively try to collect that cash But by the time you make that decision you ve most likely moved into another accounting year So now we have a question In which accounting year do we record the bad debt expense same year you make the sale or the year you finally decide you re no longer gonna try to collect that receivable AMIS 212 Marc Smith 4 AMIS 212 Introduction to Accounting II Slide 4 The answer is the bad debt expense is recorded in the same year you make the sale and that might be a little counterintuitive The reason for this the reason the bad debt expense must be recorded in the same year the credit sale is made is our friend the matching concept And the matching concept says expenses should be recorded in the same year they help to generate revenue They should be matched i e recorded in the same year the related revenue is recorded And the revenue is earned it is recorded when the sale is made So because that s when the revenue is recorded we must match i e record all associated expenses with that revenue in the same year So because of the matching concept we will record our bad debt expense in the same year that the sale happens AMIS 212 Marc Smith 5 AMIS 212 Introduction to Accounting II Slide 5 Another key key issue as it relates to bad debt expense We don t know in that first year which specific customers won t pay us We don t know in the year we make the sale which customers will pay which customers won t pay If we knew that we simply wouldn t sell to those that weren t gonna pay We don t know that All we know is that there is some percentage of customers who will not pay their bill That means that the bad debt expense account that we record must be an estimate And think about that You are required to record the bad debt expense in the year you make the sale matching But in the year you make the sale you don t know who will and who won t pay you You don t know that until later after you ve tried to collect So in order to record the bad debt expense and conform to the matching concept the amount of bad debt expense that you record is an estimate AMIS 212 Marc Smith 6 AMIS 212 Introduction to Accounting II Slide 6 And that s important I really think that is critical to recognize because it really drives the next four or five modules that we re gonna talk about Understand bad debt expense is an estimate and we have to estimate it because of the matching concept To record it To record your bad debt expense estimate you debit your bad debt expense account and you credit this account that you haven t seen before called the allowance for doubtful accounts Please note this is an adjusting entry This is an entry you make at the end of every year so we will classify it as an adjusting journal entry Let s talk about these two accounts AMIS 212 Marc Smith 7 AMIS 212 Introduction to Accounting II Slide 7 These are the two accounts that are …


View Full Document

OSU ACCTMIS 2300 - 212SEMAccountsReceivablem2

Download 212SEMAccountsReceivablem2
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view 212SEMAccountsReceivablem2 and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view 212SEMAccountsReceivablem2 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?