会计英语八章.ppt
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1、The term“receivables”refers to amounts due from another entity or individual.They are claims that are expected to be collected in cash.(1)accounts receivable(2)notes receivable(3)other receivableAccounts receivable are amount due from customers.They arise from selling goods or services on credit.Acc
2、ounts receivable are expected to be collected within one year and are classified as current assets on the balance sheet.Few companies that grant credit to customer get away from suffering credit losses.The losses due to uncollected accounts from customers are generally described as bad debts.The tot
3、al amount of uncollectible account is an expense against credit sales.Why are companies willing to sell on credit even then suffering high risk of bad debts?The answer is clear that granting credit results in high inventory turnover and increasing sales volume.Even though bad debits incurred,most of
4、 the product cost is recovered,and the return of income offsets the uncollectible accounts enough.A company can apply two methods for dealing with bad debts:The direct write-off method The allowance method.Under the direct write-off method,when a particular account is determined to be uncollectible,
5、the loss is charged to bad debits expense.That is,bad debt is recorded only when actual loss is confirmed.Assume that on Jan.15,Denny co.learn that it cannot collect 1325 account owed by its customer Kart Co.it recognizes the loss using the direct write-off method as follows:Dr.bad debt expense 1325
6、 Cr.Accounts receivableKart 1325 Sometimes an account written off is later collected due to factors such as continual collection efforts or a customers recovery of financial condition.For example,if the account previously written off by Denny Co.on Jan.15 is collected in full on February 22,the foll
7、owing entries are made to record the recovery:Dr.accounts receivableKart Co.1325 Cr.Bad debt expense 1325Dr.cash 1325 Cr.Accounts receivableKart Co.1325The matching principle requires expenses to be recognized in the same accounting period as the sales they helped produce.This means that if credit t
8、o customers helped produces sales,the bad debts expense linked to those sales is matched and reported in the same period.The direct write-off method usually does not best match sales and expenses,because bad debts expense is not recorded until an account becomes uncollectible,which often occurs in a
9、 period after that of the credit sale.To match bad debts expense with the credit sales produced,a company needs to estimate future bad debt losses.The allowance method estimates bad debits expense at the end of each accounting period and records it with an adjusting entryDec.31 Dr.bad debt expense C
10、r.Bad debt allowanceThe allowance for bad debts account is a contra asset account.It is recorded to reduce accounts receivable to its estimated realizable value(可变现净值).The presentation of the allowance for bad debts in the current asset section of the balance sheet is as follows:Accounts receivable
11、100000Less:bad debt allowance5000Net accounts receivable9500Percent of accounts receivable methodThe percent of accounts receivable method uses balance sheet relations to estimate bad debts.The method assumes that a given percent of a companys receivable is uncollectible.This percent is based on pas
12、t experience and is evaluated by current economic conditions and the customers financial position.Assume that Wane Co,has 1800000 of accounts receivable on December 31,2009.the allowance for bad debts had an ending credit balance of 6400 on December 31 2008.the company estimates 1%of its receivable
13、to be uncollectible,thus,the allowance account is required to keep a 18000(1%of 1800000)credit balance at year end.The actual amount of bad debts estimation is the difference between the required balance and the existing credit balance in the allowance account.An entry is made as follows:2009 Dec.31
14、Dr.bad debt expense 11600 Cr.Bad debt Allowance 1160018000-6400=11600When specific accounts are determined to be uncollectible,they are written off against the allowance for bed debt.Recall from the previous example,assume that on January 30 2010,Wane Co.identifies 10000 account to be uncollectible
15、after great efforts of collection.It makes the following entry to write off the bad debt.2010 Jan 30Dr.bad debt allowance 10000 Cr.Accounts receivable 10000Note that the write-off of a bad debt affects only balance sheet accounts.Another method for estimating uncollectible accounts on balance sheet
16、relation is aging of accounts receivable method.Using this method,each receivable is classified by how long it is past due date,then estimates of uncollectible amounts are made for each class of accounts receivable assuming that the longer an amount is past due,the more likely it is to be uncollecti
17、bleOccasionally,the company will receive cash from a customer after the account has been written off earlier.It is called the recovery of an uncollectible accountAssume that on march 20.2010,Wane Co,receivable 6500 from customer on account that had been written off previously.The entries are as foll
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