Short term trading investment Current assets Short term trading investment at market value Unrealized gain on investments or loss keyword decrease Other revenue and gains losses Unrealized loss on investment trade decrease Adjust investment to market value 5 1 Account for Short term Investments Remember to record in the held investments on the balance sheet Remember to record the unrealized gain on the income statement held investment investments cost Trading Securities are reported at their current market value Why is a trading security always a current asset A trading security is always current because the investor intends to sell the trading security in the very near future A trading security is a current asset that is to be sold within one year or within the company s operating cycle if it is longer than a year BS IS JE 5 2 Apply GAAP for proper revenue recognition 3 20 n 30 This means that the discount is 3 if paid within 20 days or it s the full price if paid in 30 days JE 5 3 Account for and control account receivable Cash collected from customers AR beg end Handle accounts receivable does not touch cash FOB destination means that sale will not be recorded until merchandise is received on the IS JE Sold Merchandise Collected payment Cash Sales Discount Returns Sales Rev Sales Ret x 2 Sales Discount Payment Sales Returns and allowances keyword damaged Cash Sales Discount Sales and Allowances Account Receivable Accounts Receivable Accounts Receivable Accounts Receivable Account Receivable Sales Revenue Allowance for Uncollectable Accounts Uncollectable Account Expense Account receivable Less Allowance for Uncollectable Accounts Accounts receivable net Aging Method Amount x percent Allowance Add all Allowance to get Estimated Allowance Estimated Unadjusted Adjusting entry 5 4 Evaluate collectability using the allowance for uncollectable accounts Credit sales x Bad debt percent Uncollectable account expense Uncollectable Uncollectable expense Allowance Aging of receivables uncollectable account uncollectable expense With a problem with aging and uncollectable expense the answer is always aging amount AR Allow uncollected aging Net realizable value Amount of net receivables net receivable value after the write offs Acc Rec Uncollect Acc Net RV Rev x bed debt percent Uncoll account expense JE BS JE Revenue x Bad debt percent T Account Accounts Receivable Row 1 Row 2 Row 3 Beg Bal Allowance for Uncollectible Accounts AR Allow uncoll not collected AR uncoll net receivables Percent of Sales Method Net Credit Sales x percent uncollectable estimated collectables Account Expense Credit balance Allow for doubtful accounts Accounts Receivable Sales Revenue Cash Allowance for Uncollectable accounts Uncollectable Account Expense Beg Bal I 2 1 I 3 End Bal Allowance for Uncollectable Accounts 4 Beg Bal End Bal Accounts receivable Account Receivable 3 I Cash Interest Revenue Note Receivable Cash Doubtful Accounts write off Allowance 5 5 Account for notes receivable Note Receivable x interest rate x time period 12 Interest Revenue Note For time period minus one for the months of the note JE Interest Receivable Maturity value Principal x interest rate x time period 12 interest revenue Principal Interest due Total maturity value If the adjusting entry to accrue interest on a note receivable is omitted then assets net income and stockholder s equity are understated JE Failing to make an adjusting entry for accrued interest will result in net income and assets will be understated JE Principal x interest rate x time in years interest revenue Total interest revenue recognized interest revenue remaining interest revenue Get total cash cash interest receivable interest revenue Note Receivable Interest receivable Interest revenue Note Receivable Interest Revenue Cash
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