ACCT 200 1st Edition Lecture 10Outline of Last Lecture I. Chapter 1 ReviewII. Chapter 2 ReviewIII. Chapter 3 ReviewIV. Chapter 4 ReviewOutline of Current Lecture I. ReceivablesII. E 5-1III. DiscountsIV. E 5-3V. E 5-4VI. E 5-6VII. Allowance for Uncollectible AccountsVIII. BE 5-4IX. BE 5-5X. Review and ExamplesCurrent LectureAccounts receivable means a customer owes moneyNontrade receivables and notes receivable are receivables not from customersE 5-15/1 Acct receivable 3000Service revenue 30005/13 Cash 3000Acct receivable 3000DiscountsSales discount – incentive to pay quickly2/10 n/30 means customer receives 2% discount if they pay within 10 days; no discount if over 10 days (still must be within 30 days)Sales discount – contra revenue account; debit balance; reduces revenuesE 5-310,000 sale, term 3/10 net 30(10,000)(.03)=30010,000 – 300 discount=9700 amount owed3/12 Acct receivable 10,000Revenue 10,0003/20 Cash 9700Sales discount 300Acct receivable 10,000E 5-4Pay in 25 days(no discount)3/12 Acct receivable 10,000Revenue 10,0004/6 Cash 10,000Acct receivable 10,000E 5-64/25 Acct receivable 2500Revenue 25004/27 Sales allowance 500Acct receivable 5004/30 Cash 2000Acct receivable 2000Income statement:Revenue 2500-sales allowance -500Net revenue = 2000T-accountAcct Receivable Sale on Returnsacct Allowance Payments fromEnd balanceAllowance for Uncollectible AccountsAccounts receivable 20-allow for uncoll accts -6 (contra asset)Net acct receivable = 14 (net realizable value)Write-off means the company is never going to receive the moneyBalance of uncollectible accounts means either:-overestimated last period-still waiting on some accounts receivableBE 5-4Beginning allowance for doubtful accounts=2000Needed balance for accounts=10,0001. Amount to adjust=end balance – existing balance 10,000 – 2000=8000 (adjust/increase by)2. Journal entryDr Bad debt expense 8000Cr Allow for uncoll acct 8000BE 5-5Beginning allowance balance=2000 dr (too many bad debts; overdrawn)Need in allowance=10,000 cr10,000 – (-2000)=12,000T-account: Allow for Uncoll. Acct 2000 x x=12,00010,000Review and examples:Acct receivable transactions:SalesSales returnSales discountTrade discountCollection from customer w/out discountReceivables – value on balances at “true” collectible value=net realizable valueSet up contra asset account - - allow for uncollectible accountsAcct receivable 100,000-allow for uncoll. acct -5,000Net acct receivable = 95,000 (net realizable value – expect to collect)Allowance methodEntry to adjust and set up allowance accountEntry to write off bad accountsAcct receivable 200,000 drBegin allow. for uncoll. acct 4000 cr% estimated uncoll=5%-what is end allow balance? (200,000)(.05)=10,000-journal entry:Dr Bad debt expense 6000Cr Allow for uncoll acct 6000Enron goes bankrupt and the $3000 they owe needs to be written offDr allow for uncollect acct 3000Cr acct receivable 3000Before AfterAcct rec 200,000 dr 197,000 drAllow 10,000 cr 7000 cr Net 190,000 dr = 190,000 dr*if we have enough of an allowance balance, net won’t
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