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Lecture Survey of accounting (4/e) - Chapter 5: Accounting for receivables and inventory cost flow

In this chapter, you will be able to: Explain how the allowance method of accounting for uncollectible accounts affects financial statements, use the percent of revenue method to estimate the uncollectible accounts expense, use the percent of receivables method to estimate the uncollectible accounts expense,. | Chapter Five Accounting for Receivables and Inventory Cost Flow © 2015 McGraw-Hill Education. 1 Most companies do not expect to collect the full amount (face value) of their accounts receivable. Even carefully screened credit customers sometimes don’t pay their bills. The net realizable value of accounts receivable represents the amount of receivables a company estimates it will actually collect. The net realizable value is the face value less an allowance for doubtful accounts. Net Realizable Value of Accounts Receivable 5-2 2 Revenue Recognition Event 1: Revenue Recognition During 2014, Allen’s Tutoring Services recognized $14,000 of service revenue earned on account. 5-3 3 Collection for Receivables Event 2: Collection of Receivables Allen’s Tutoring Services collected $12,500 cash from accounts receivable in 2014. 5-4 4 Recognizing Uncollectible Account Expense Event 3 Recognizing Uncollectible Accounts Expense Allen’s Tutoring Services recognized uncollectible accounts expense . | Chapter Five Accounting for Receivables and Inventory Cost Flow © 2015 McGraw-Hill Education. 1 Most companies do not expect to collect the full amount (face value) of their accounts receivable. Even carefully screened credit customers sometimes don’t pay their bills. The net realizable value of accounts receivable represents the amount of receivables a company estimates it will actually collect. The net realizable value is the face value less an allowance for doubtful accounts. Net Realizable Value of Accounts Receivable 5-2 2 Revenue Recognition Event 1: Revenue Recognition During 2014, Allen’s Tutoring Services recognized $14,000 of service revenue earned on account. 5-3 3 Collection for Receivables Event 2: Collection of Receivables Allen’s Tutoring Services collected $12,500 cash from accounts receivable in 2014. 5-4 4 Recognizing Uncollectible Account Expense Event 3 Recognizing Uncollectible Accounts Expense Allen’s Tutoring Services recognized uncollectible accounts expense for accounts expected to be uncollectible in the future. = Liab. + Acct. Rec. - Allow. = + Com. Stk. + Retained Earnings Revenue - Expenses = Net Income Cash Flow n/a - 75 = n/a + n/a + (75) n/a - 75 = (75) n/a Assets Stockholders' Equity 5-5 5 Financial Statements 5-6 6 Subsequent Period Event 1 Write-Off of an Uncollectible Account Receivable Allen’s Tutoring Services wrote off $70 of uncollectible accounts receivable. 5-7 7 Revenue Recognition Event 2 Revenue Recognition Allen’s Tutoring Services provided $10,000 of tutoring services on account during 2015. 5-8 8 Collection of Accounts Receivable Event 3 Collection of Accounts Receivable Allen’s Tutoring Services collected $8,430 cash from accounts receivable. 5-9 9 Recovery of an Uncollectible Account Event 4 Recovery of an Uncollectible account: Reinstate Receivable Allen’s Tutoring Services recovered a receivable that it had previously written off. 5-10 10 Recovery of an Uncollectible Account Event 5 Recovery of an Uncollectible .