Professional Documents
Culture Documents
the adjusting entry is again plugged in to make the entry balance. The focus is on the allowance account determined by its relationship to accounts receivable. 7. The balance in the allowance account would affect the adjusting entry when using the aging analysis approach, for reasons discussed in #6 above. 8. The net realizable value of accounts receivable does not change when an account is written off under the allowance method. The write-off involves a debit to the allowance account and a credit to the accounts receivable account being written off. Both the contraasset and asset accounts are decreasing, causing total assets to remain the same. 9. Three accounts will be creditedthe notes receivable account, interest revenue, and interest receivable. The interest receivable account was created during the process of preparing year-end adjusting entries. 10. The recession of 2009 was characterized by an unwillingness of banks to loan money. This restriction of the flow of capital sent shock waves through businesses. The contraction made it harder for companies to earn the type of revenue that they were expecting to help them to be able to pay off their debts. All of this caused accounts receivable turnover ratios to become lower than they were in previous years when cash flowed more freely.
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Short Exercises
(5-10 min.) S 7-1
Book Bank Book Book Bank 1. 2. 3. 4. 5. Bank service charge Deposit in transit Bank collection of amount due from customer Interest revenue on bank balance Outstanding checks
151
MEE AUTO SERVICE Bank Reconciliation March 31, 2010 Bank Balance, March 31 Add: Deposit in transit 200 4,100 $3,900 Book Balance, March 31 Add: Bank collection Interest revenue 710 10 3,220 Less: Outstanding checks Adjusted bank balance (900) $3,200 Less: Service charge Adjusted book balance (20) $3,200 $2,500
Amounts agree
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Journal POST DATE Mar 31 Cash Interest Revenue Record interest earned on bank balance. ACCOUNTS REF. Dr. 10 10 Cr.
31
20 20
31
180 180
Computations: Cash in Bank Accounts plus Petty Cash = $500 + $22,000 = $22,500
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f. i.
1. A contra-account, related to accounts receivable, which holds the estimated 2. A method of accounting for uncollectible receivables in which the company
amount of uncollectible receivables waits until a specific customers account receivable is uncollectible before recording uncollectible accounts expense e. a. receivable h. b. d. customers g. 8. A method of estimating uncollectible receivables that calculates uncollectible accounts expense based on net credit sales 5. A way to estimate uncollectible accounts by analyzing individual accounts 6. The party to a credit transaction who makes a purchase and has a payable 7. Cost to the seller of credit sales; arises from the failure to collect from credit receivable according to the length of time they have been receivable 3. A method of recording collection losses on the basis of estimates instead of 4. The party to a credit transaction who sells goods or a service and obtains a waiting to see which customers the company will not collect from
Galvan probably does not expect to collect all $4,000 of the accounts receivable because, realistically, he knows he will most likely not be able to collect from some clients.
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2.
Balance sheet: Accounts Receivable Less: Allowance for Uncollectible Accounts Accounts Receivable, net
155
Journal POST DATE a. ACCOUNTS AND EXPLANATIONS Accounts Receivable Service Revenue Record service revenue. REF. Dr. 600,000 600,000 Cr.
b.
580,000 580,000
c.
Allowance for Uncollectible Accounts Accounts Receivable Write off uncollectible accounts.
15,000 15,000
d.
Uncollectible Accounts Expense ($600,000 .02) Allowance for Uncollectible Accounts Record estimate of uncollectible accounts expense for the year.
12,000 12,000
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b.
320,000 320,000
c.
Allowance for Uncollectible Accounts Accounts Receivable Write off uncollectible accounts.
15,000 15,000
d.
Uncollectible Accounts Expense Allowance for Uncollectible Accounts Record estimate of uncollectible accounts expense for the year. Allowance for Uncollectible Accounts 15,000 Bal. Uncollectible accounts expense Bal.
14,000 14,000
Write-offs
(continued) S 7-10
Alternative solution:
Waybright Kemp Financial Accounting 1e 157
Ending balance = Beginning balance write offs + Uncollectible Accounts Expense Where X = Uncollectible Accounts Expense, $5,000 = $6,000 - $15,000 + X $5,000 + $15,000 - $6,000 = X $14,000 = X
2,300 2,300
Allowance for Uncollectible Accounts Record estimate of uncollectible accounts expense for the year.
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$700
+ $400
+ $500
+ $2,000
= $
3,600
Allowance for Uncollectible Accounts Bal. Uncollectible accounts Expense Bal. 1,300 = 2,300 3,600
i e c g b h f d a
1. A written promise to pay a specified amount of money at a particular future date 2. The date when final payment of the note is due; also called the due date. 3. The percentage rate of interest specified by the note for one year 4. The entity to whom the maker promises future payment 5. The period of time during which interest is earned 6. The amount loaned out by the payee and borrowed by the maker of the note 7. The sum of the principal plus interest due at maturity 8. The entity that signs the note and promises to pay the required amount 9. The revenue to the payee for loaning money; the expense to the debtor
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2. Sept.
10
Cash ($100,000 + $2,000) Note ReceivableC. Kleuters Interest Revenue ($100,000 .08 90/360)
102,000 100,000
2,000
161
Net Credit Sales Divide by average Accounts Receivable* Equals accounts receivable turnover
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Exercises
(b)
(c)
(d)
163
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Req. 2 Journal DATE Sep 30 ACCOUNTS Accounts payable Cash To correct error on check written to vendor. Miscellaneous Expense Cash Record bank service charge and cost of checks. POST REF. Dr. 10 Cr. 10 35 35
30
165
Req. 2 Journal DATE Jan 31 ACCOUNTS Cash Rental Income To record rental income Salaries Expense Cash To correct error on check written to pay salaries. Miscellaneous Expense Cash Record bank service charge and cost of checks. Accounts Receivable Cash Record NSF checks POST REF. Dr. 500 Cr. 500 270 270 25 25 65 65
31
31
31
Nov.
Nov
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Jan.
Jan.
Req. 2 Accounts Receivable Bal. 30,000 Collections Credit Sales 120,000 Write-offs Bal. 58,800 90,000 1,200 Allowance for Uncollectible Accounts Write-offs 1,200 Bal. 1,500 Uncollectible 2,400 accounts expense Bal. 2,700
Net Accounts Receivable: $58,800 $2,700 = $56,100. Rice Automotive expects to collect the net Accounts Receivable of $56,100.
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169
= $4,000 = $2,000
June
30
Computations: Interest Receivable: R. Simpson: $20,000 .08 3/12 = $400 Friday Corp.: $ 3,000 .10 24/360 = 20 Total interest receivable at June 30 $420
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Nov.
Dec.
31
Company D should be concerned because they only have $.86 of Quick Assets to pay for every $1 owed of Current Liabilities.
171
= = = =
= 10.4 times per year An accounts receivable turnover ratio of 10.4 is somewhat weak relative to credit terms of net 30.
Book $ 990 Balance, March 31 Add: Bank collection Interest revenue Less: (b) (430) Service charge (40) $1,240 $1,240 Adjusted book balance 420 100 (d) 1,280 (c) $ 760
(b)
(c)
(d)
$990 Bank balance, March 31 + $680 Deposit in transit = $1,670 Subototal Outstanding checks: $1,670 Subtotal from part (a) $1,240 Adjusted bank balance $ 430 Outstanding checks Balance, March 31: $1,280 Subtotal from part (d) below $ 420 Bank collection $ 100 Interest revenue $ 760 Book balance, March 31 Subtotal: $1,240 Adjusted book balance + $ 40 Service charge = $1,280 Subtotal
173
Req. 2
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Journal DATE Oct 31 ACCOUNTS Accounts payable Cash To correct error on check written to vendor. Miscellaneous Expense Cash Record bank service charge and cost of checks. POST REF. Dr. 100 Cr. 100 35 35
31
Req. 2 Journal
Waybright Kemp Financial Accounting 1e 175
DATE Nov 30
ACCOUNTS Cash Rental Income To record rental income Accounts payable Cash To correct error on check written to vendor. Miscellaneous Expense Cash Record bank service charge and cost of checks. Accounts Receivable Cash Record NSF Checks
POST REF.
Dr. 750
Cr. 750
30
540 540 46 46 80 80
30
30
Dec.
Dec
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Jan.
Jan.
Req. 2 Accounts Receivable Bal. 20,000 Collections Credit Sales 160,000 Write-offs Bal. 123,500 54,000 2,500 Allowance for Uncollectible Accounts Write-offs 2,500 Bal. 5,900 Uncollectible 6,400 accounts expense Bal. 9,800
Net Accounts Receivable: $123,500 $9,800 = $113,700. Ortiz Automotive expects to collect the net Accounts Receivable of $113,700.
Req. 1 Journal DATE ACCOUNTS AND EXPLANATIONS 2010 Jul. 31 Uncollectible Accounts Expense ($15,500 - $6,400) Allowance for Uncollectible Accounts Record estimate of uncollectible accounts expense for the year. Computations: Balance needed in allowance account: ($175,000 .008) + ($70,000 .03) + ($60,000 .05) + ($15,000 .60) = $1,400 + $2,100 + $3,000 + $9,000 = $15,500. Adjusting entry amount: $15,500 balance needed $6,400 current balance = $9,100. Allowance for Uncollectible Accounts Bal. Uncollectible accounts expense Bal. Req. 2 Journal DATE ACCOUNTS AND EXPLANATIONS 2010 Jul. 31 Uncollectible Accounts Expense ($15,500 + $500) Allowance for Uncollectible Accounts Record estimate of uncollectible accounts expense for the year. Computations: Balance needed in allowance account: ($175,000 .008) + ($70,000 .03) + ($60,000 .05) + ($15,000 .60) = $1,400 + $2,100 + $3,000 + $9,000 = $15,500. Adjusting entry amount: $15,500 balance needed + $500 current balance = $16,000. Bal. Allowance for Uncollectible Accounts 500 Uncollectible accounts expense Bal.
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POST REF.
Dr. 9,100
Cr.
9,100
POST REF.
Dr. 16,000
Cr.
16,000
16,000 15,500
= $70,000 = $70,000
179
Req. 2 a. b. c. d. Req. 3 Payoff at January 31, 2011: Principal Interest $2,000,000 .07 7/12 = Total $2,000,000 81,667 $2,081,667 Nature Bank has a note receivable. Gary Simon has a note payable. Nature Bank has interest revenue. Gary Simon has interest expense.
April
30
391 391
Computations: Interest Receivable: C. Fadal: $15,000 .10 3/12 Lawn Pro: $ 6,000 .04 24/360 Total interest receivable at April 30 = $375 = 16 $391
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Aug.
Sep.
30
Company A should be concerned because they only have $.88 of Quick Assets to pay for every $1 owed in Current Liabilities and Company B should be concerned because they only have $.73 of Quick Assets to pay for every $1 owed of Current Liabilities.
181
a.
Quick ratio
= = = =
Cash
An accounts receivable turnover ratio of 15.8 is strong relative to credit terms of net 30.
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Problems
(20-25 min.) P 7-42A
NIELSON, INC. Bank Reconciliation May 31, 2010 Bank Balance, May 31 Add: Deposit in transit 2,037 10,337 $ 8,300 Balance, May 31 Add: EFT collection of rent Bank collection of note receivable Less: Less: Outstanding checks No. 1420 No. 1421 No. 1422 Adjusted bank balance 970 200 2,267 NSF check EFT payment of insurance Service charge Book error$216 check recorded as $126 90 $6,900 441 340 25 1,000 7,796 625 Book $6,171
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Req. 2 Journal DATE Oct. 31 Cash ACCOUNTS POST REF. Dr. 200 Cr. 200
Accounts Receivable Record EFT collection from customer. 31 Cash Rental Revenue Record rental revenue collected by bank. 31 Cash Interest Revenue Record interest earned on bank balance. 31 Accounts Receivable ($67 + $192) Cash Record NSF checks returned by the bank. 31 Miscellaneous Expense Cash Record bank service charge. 259 16 900
900
16
259
7 7
185
550,000 7,000
Allowance for Uncollectible Accounts Bal. 9,000 Write7,000 Uncollectible 10,000 offs accounts expense Bal. 12,000
Req. 2
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Journal DATE ACCOUNTS AND EXPLANATIONS Sept. 30 Accounts Receivable Sales Revenue Record sales on account. 30 Cash Accounts Receivable Record collections on account. 30 Uncollectible Accounts Expense Accounts Receivable Write off uncollectible accounts. 7,000 7,000 POST REF. Dr. 500,000 Cr. 500,000 550,000 550,000
550,000 7,000
Uncollectible Accounts Expense under the allowance method better matches expense with revenue because it is recorded in the same period sales are made. The expense measured by the direct write-off method is not related to revenue in any systematic way. Req. 4 Balance sheet: Accounts Receivable Less: Allowance for Uncollectible Accounts Accounts Receivable, net Allowance Method $93,000 12,000 $81,000 Direct WriteOff Method $93,000 $93,000
Net accounts receivable under the allowance method is more realistic because it shows the amount of the receivables that the company expects to collect. The net receivable measured by the direct write-off method is unrealistic because the company knows that it will fail to collect from some customers.
187
June
29
Aug.
Dec.
31
31
Req. 3
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Balance sheet at December 31, 2010: Current assets: Accounts receivable Less: Allowance for uncollectible accounts Accounts receivable, net
Computations: Note (1): Note (2): Note (3): Total interest revenue Req. 3 Journal DATE 2011 Dec. 23 ACCOUNTS AND EXPLANATIONS Cash ($13,000 + $26 + $1,144) Note Receivable Interest Receivable ($13,000 .09 8/360) Interest Revenue ($13,000 .09 352/360) POST REF. Dr. 14,170 13,000 26 1,144
189
= = = =
$ 26 120 60 $206
Cr.
31 2010 Feb. 17
1 31 1
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19.9
$4,995 = $241.5
20.7
The quick ratio decreased from .74 to .70. Short-term investments and current liabilities both decreased from 2009 to 2010. Because the decrease in short-term investments was greater than that for current liabilities, the quick ratio deteriorated. The accounts receivable turnover was approximately the same at 20 times for both years. The decline in the quick ratio conveys an unfavorable impression about the company. Student responses may vary.
191
192
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193
Req. 2 Journal DATE Dec. 31 Cash ACCOUNTS POST REF. Dr. 400 Cr. 400
Accounts Receivable Record EFT collection from customer. 31 Cash Rental Revenue Record rental revenue collected by bank. 31 Cash Interest Revenue Record interest earned on bank balance. 31 Accounts Receivable ($60 + $205) Cash Record NSF checks returned by the bank. 31 Miscellaneous Expense Cash Record bank service charge. 265 12 700
700
12
265 19 19
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425,000 6,000
Allowance for Uncollectible Accounts Bal. 8,000 Write6,000 Uncollectible 9,800 offs accounts expense Bal. 11,800
Req 2.
Waybright Kemp Financial Accounting 1e 195
Journal DATE ACCOUNTS AND EXPLANATIONS April. 30 Accounts Receivable Sales Revenue Record sales on account. 30 Cash Accounts Receivable Record collections on account. 30 Uncollectible Accounts Expense Accounts Receivable Write off uncollectible accounts. Accounts Receivable 165,000 Collections 490,000 Write-offs 224,000 6,000 6,000 POST REF. Dr. 490,000 Cr. 490,000 425,000 425,000
425,000 6,000
Uncollectible Accounts Expense under the allowance method better matches expense with revenue because it is recorded in the same period sales are made. The expense measured by the direct write-off method is not related to revenue in any systematic way. Req. 4 Balance sheet: Accounts receivable Less: Allowance for uncollectible accounts Accounts receivable, net Allowance Method $224,000 11,800 $212,200 Direct WriteOff Method $224,000 $224,000
Net accounts receivable under the allowance method is more realistic because it shows the amount of the receivables that the company expects to collect. The net receivable measured by the direct write-off method is unrealistic because the company knows that it will fail to collect from some customers.
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June
29
Aug.
Dec.
31
31
Req. 3
Waybright Kemp Financial Accounting 1e 197
Balance sheet at December 31, 2010: Current assets: Accounts receivable Less: Allowance for uncollectible accounts Accounts receivable, net
Computations: Note (1): Note (2): Note (3): Total interest revenue
= = = =
$ 23 73 80 $176
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Req. 3 Journal DATE 2011 Oct. 23 ACCOUNTS AND EXPLANATIONS Cash ($13,000 + $23 + $1,017) Note Receivable Interest Receivable ($13,000 .08 8/360) Interest Revenue ($13,000 .08 352/360) POST REF. Dr. 14,040 13,000 23 1,017 Cr.
Cr.
31 2010 Feb. 17
1 31 1
17.6
$5,039 = $280.5
18.0
Req. 2 MEMORANDUM DATE: TO: FROM: RE: The Owner of Perfection Taco Restaurants Student Name Changes in ratio values from 2009 to 2010
The quick ratio decreased from .70 to .64. Short-term investments and current liabilities both decreased from 2009 to 2010. Because the decrease in short-term investments was greater than that for current liabilities, the quick ratio deteriorated. The accounts receivable turnover was substantially the same at around 18 times for both years. The decline in the quick ratio conveys an unfavorable impression about the company. Student responses may vary.
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Continuing Exercise
Journal DATE ACCOUNTS AND EXPLANATIONS Aug. 18 Cash Accounts Receivable J. Henderson Oct. 12 Uncollectible Accounts Expense Accounts receivable J. Henderson POST. REF. DEBIT 250 150 150 CREDIT 250
Continuing Problem
Req 1 Accounts Receivable Bal 8/31 5,400 September Sales 52,000 Bal 9/30 57,400 Req 2 Journal DATE ACCOUNTS AND EXPLANATIONS Sep 30 Uncollectible Accounts Expense * Allowance for Uncollectible Accounts Record estimated uncollectible accounts POST. REF. DEBIT 2,870 CREDIT 2,870
*$57,400 x .05 = $2,870 (Note: There was no beginning balance in Allowance for Doubtful Accounts.) Req 3 Balance sheet at September 30, 2010: Current assets: Accounts receivable Less: Allowance for uncollectible accounts Accounts receivable, net
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Ethics in Action
Case #1 Yes, Ed should provide financial statements that reflect this new information. This one account represents a substantial amount of the total account receivable balance owed and the fact that it will not be collected needs to be reflected in the financials. While Ed may have supplied the bank with the original information, once he became aware of this bankruptcy he would have a responsibility to update the old financial information. There are certainly ethical issues regarding new information that will have a material impact on financial statements previously provided. In this case, the bank is basing its lending decisions upon the financials Ed originally provided. Knowing that a $24,295 account receivable will become uncollectible may influence the lending decision, and accordingly, it must ethically be disclosed. The allowance method is designed for establishing an estimated allowance; given that it was more than 90 days past due, a larger allowance was warranted. Usually banks request an aging schedule to determine the individual customers and the various ages of the related balances. In this case, Ed would have to disclose that the account was uncollectible rather than 90 days past due. Also, most companies disclose individual customers who represent unusually large account balances relative to their other customers. This provides further insight into the possible risk exposures. Had a relatively small account become uncollectible, the amount in the allowance account could easily be used for the write off. Thus, there would be no material impact on the existing financial information and the bank would not need to be notified.
Case #2 Yes, it would be unethical. Changing the percentage used when applying the allowance method for estimating bad debt expense would be permissible if new information was available that would require the percentage to change in order to reflect a more accurate allowance. However, merely changing the percentage to manipulate the financial
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statement disclosures to a desired result would be unethical. The financial statements must provide reliable information for users to make informed decisions. Again, the ethical dilemma lies in the reason for the percentage change, rather than the percentage change itself. Merely attempting to manipulate the financial statements is not a valid business reason for changing the percentage used. It is unlikely that they would disclose the true reason as to why they changed the percentage amount. Further, disclosing the fact that the percentage was changed simply to provide a higher net income would still be unacceptable. No compromise would be acceptable. The allowance method is based upon the past experience of the business in order to provide the most reliable information for accruing the bad debt expense and related allowance for uncollectible accounts. If the past experience clearly supports 5% of credit sales, then that needs to be used for estimating the bad debt expense. If there are legitimate business reasons for reducing the current amount of bad debt expense then it would be acceptable to reduce the 5% of credit sales amount to a lower percentage that would better reflect the estimated uncollectible accounts. However, they should be conservative in their estimate and thus gradually lower the rate. By using the 1% of credit sales for the bad debt expense, the allowance for uncollectible accounts will not be large enough to accommodate the uncollectible accounts receivable in the next fiscal year. While they may be able to go undetected in the short run, they cannot continue to manipulate the financial statements in the long run and they will eventually be found out. They should use the most accurate information available in order to provide the most reliable financial statement disclosures.
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Financial Analysis
1. The balance as of December 31, 2008 was $299,585,000. The balance as of December 31, 2007 was $300,506,000. There was a decrease of $921,000. 2. The fact that Columbia Sportswears accounts receivable is shown at net value indicates that it uses the allowance method. 3. In Note 2 the allowance for doubtful accounts balances are provided. So, at December 31, 2008, the total accounts receivable balance was $309,127,000 ($299,585,000 net + $9,542,000 allowance). 4. The allowance for doubtful accounts increased by $2,173,000 from $7,369,000 in 2007 to $9,542,000 in 2008. In order to determine the amount of bad debts written off during the year, you would need to know the amount of the provision for bad debts (bad debt expense) that was added to the allowance account. Because this information is not provided in the income statement, it is impossible to determine the amount of bad debts that were written off during the year.
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Industry Analysis
Accounts receivable turnover is the ratio of credit sales to average accounts receivable. It is calculated by dividing the total sales (found on the income statement) by the average accounts receivable. We have to assume that all of the sales for both companies for the year were credit sales, since we dont know otherwise. To find the average accounts receivable, you would add the ending accounts receivable and the beginning accounts receivable (which would be the ending accounts receivable from the previous year) and divide the sum by 2. The calculation of accounts receivable turnover for the two companies would be as follows:
Columbia Sportswear: Average accounts receivable: (ending 2008 - $299,585 + ending 2007 - $300,506) = $600,091/2 = $300,045. Total sales for 2008 - $1,317,835 divided by average accounts receivable - $300,045 = 4.39 times.
Under Armour: Average accounts receivable: (ending 2008 - $81,302 + ending 2007 - $93,515) = $174,817/2 = $87,408. Total sales for 2008 - $725,244 divide by average accounts receivable - $87,408 = 8.3 times.
From the calculations above, Under Armour has the higher accounts receivable turnover. It is better to have a higher accounts receivable turnover than a lower one because that usually indicates that the accounts receivable is being collected faster. However, to really know if Under Armour is doing better by having a higher turnover ratio, we would have to compare this years turnover rate to last years turnover rate. Were not able to do that with the data given because we dont know what the ending accounts receivable was for 2006 to calculate average accounts receivable. However, if we assume that both companies offer a 30-day credit period, then neither company is doing very well because with 30-day credit terms, you would expect a ratio of closer to 12 (360 days divided by 30 days).
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Accounts Receivable - Burns & Associates, Inc. Bank Service Charges Cash Record NSF check from Burns & Associates, Inc.
The journal entry above puts the amount of the returned check plus the return check charge back into accounts receivable for Burns & Associates, Inc. The logic there is that your company incurred an additional $200 expense that Burns should be responsible for paying. If it subsequently becomes necessary to write off the entire amount due from Burns and you are using the Allowance method to account for bad debts, the journal entry would look like this: Debit 30,200.00 Credit 30,200.00
Allowance for Doubtful Accounts Accounts Receivable Burns & Associates, Inc. Write off Burns & Associates, Inc. receivable
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Written Communication
Proposed correspondence: Mr. Burns: I have attached a copy of your check which was returned by the bank for non-sufficient funds. I have also attached a copy of the correspondence from the bank that accompanied the check showing where they charged my account $200 for processing the returned check. This presents several different problems for me. First of all, there is the matter of the $200 charged to my account. I would appreciate it if you could immediately reimburse me for that amount. But the second matter is of much more concern to me. You may remember that we had several discussions prior to my receipt of your check about the lateness of the payment. Now that the check has been returned, we are back in the same situation of you not having paid me, but now it is even later than when we had our last discussion. Just as I do with all of my clients, I value your business and I wish to continue our business relationship for many years to come. However, I cannot condone late payments and certainly do not appreciate having checks bounce out of my account! If we want to continue doing business with each other, we cant let this happen again. Please contact me at your earliest convenience, so we can discuss the quickest way to get this matter taken care of.
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Journal DATE Nov. 1 30 ACCOUNTS Petty Cash Cash Postage Expense Cash POST REF. Dr. 100 67 67 Cr. 100
Journal DATE June 1 30 ACCOUNTS Petty Cash Cash Office Supplies Entertainment Expense Cash Short Cash Petty Cash Cash POST REF. Dr. 200 104 70 4 178 100 100 Cr. 200
30
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Exercises
(10-15 min.) E 7A-3A
Journal DATE ACCOUNTS Mar 1 Petty Cash Cash Open the petty cash fund. 31 Delivery Expense Postage Expense Supplies Expense ($44 + $30) Miscellaneous Expense Cash Short Cash Replenish the petty cash fund. POST REF. Dr. 200 Cr. 200 20 40 74 16 5 155
31
209
30
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Problems
10-15 min.) P 7A-7A
Req. 1 Journal DATE Jul ACCOUNTS 1 Petty Cash Cash Open the petty cash fund. POST REF. Dr. 300 Cr. 300
Req. 2 Journal DATE Jul ACCOUNTS 31 Office Supplies Expense Travel Expense Delivery Expense Entertainment Expense Cash Short Cash Replenish the petty cash fund. POST REF. Dr. 86 25 17 90 20 Cr.
238
A difference of $20 charged to the cash short account is approaching an amount that is significant. A review of the internal controls supporting the petty cash fund should be performed to prevent the custodian from taking cash for personal use. Req. 3 Journal DATE Aug 1 ACCOUNTS Petty Cash ($350 $300) Cash Increase the petty cash fund from $300 to $350. POST REF. Dr. 50 Cr. 50
The custodian cashes the check and places $50 in currency and coin in the fund.
211
263
A difference of $30 charged to the cash short account is approaching an amount that is significant. A review of the internal controls supporting the petty cash fund should be performed to prevent the custodian from taking cash for personal use. Req. 3 Journal DATE April 1 ACCOUNTS Petty Cash ($375 $300) Cash Increase the petty cash fund from $300 to $375. POST REF. Dr. 75 Cr. 75
The custodian cashes the check and places $75 in currency and coin in the fund.
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