UT Knoxville ACCT 200 - Chapter 6 (28 pages)

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Chapter 6



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Chapter 6

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Pages:
28
School:
University of Tennessee
Course:
Acct 200 - Foundations of Accounting
Foundations of Accounting Documents

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1 Current Assets Receivables and Inventory Chapter 6 A200 Survey of Accounting University of Tennessee 2 Ch 6 Receivables Receivables Amounts owed to the business by customers and others Receivables Recorded as assets on the Balance Sheet Current asset if the business expects to receive the amount within one year Long term asset if the business expects to receive the amount in longer than one year Types of Receivables we will study in A200 Accounts Receivable current asset Notes Receivable either current or long term asset Interest Receivable current asset 3 Ch 6 Accounts Receivable Transaction 1 During 2012 Corker Corporation sold goods to customers on account for 335 200 STATEMENT OF CASH FLOWS INCOME STATEMENT and STATEMENT OF RETAINED EARNINGS BALANCE SHEET Assets Accounts Receivable 335 200 Liabilities Equity Retained Earnings 335 200 335 200 Sales Revenue 4 Ch 6 Accounts Receivable Uncollectibles When they sell goods on account businesses take a risk that they will never receive the cash i e risk that customers will never pay Uncollectibility Risk can be reduced by Refusing to sell on account Cost of this approach it turns off customers Transferring collection risk to credit card company Cost of this approach monthly fees cost of purchasing or leasing a card reader and per transaction fees can total 5 10 of the total accounts receivable Transferring collection risk to a factor sell the right to future cash for cash now Cost of this approach Factors charge 2 10 of the total A Rec Proper asset valuation and honest financial reporting require that businesses estimate and report each period how much of their receivables Ch 6 Accounts Receivable Uncollectibles 1 At the end of each period the business estimates how much of that period s sales on account will not be collected using the aging of accounts method based on analysis of receivables Recording the estimate Increase Uncollectible Accounts Expense Increase Allowance for Doubtful Accounts 2 Report Accounts



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