Accounts Receivable and Sales Return
a. What is account receivable?
Credit sales, sales on account b. How do accounts receivable differ from notes receivable?
Notes Receivable arises when the seller asks for a note to replace an Accounts Receivable when the customer requests additional time to pay a past-due account. A promissory note is a written promise to pay a specific amount of money, usually including interest, at a future date. c. What is a contra asset?
An account which offsets another account. A contra-asset account has a credit balance and offsets the debit balance of the corresponding asset. A contra-liability account has a debit balance and offsets the credit balance of the corresponding liability.
Provisions for bad and doubtful debts: Allowance of uncollectible accounts receivable
Provisions for sales returns: estimate sales return
Managers will consider past experience, credit quality of the buyer, the age of the receivable and the economy for these accounts d. Two approaches for estimating uncollectible accounts:
Percentage of sales: It is based on prior experience of the business. It is computed as a percentage of credit sales. It ignores the current balance of the allowance account.
Aging of accounts: Analyzed according to the length of time they remain outstanding e. Why did the company extend credit to customers?
They would not have extended credit if they knew which companies would eventually not pay.
Nikki Ko-Wei Chen
ACCT 610
Gamma 6
Case 8: Pearson plc
Nikki Ko-Wei Chen
ACCT 610
Gamma 6
Case 8: Pearson plc
f. Provision for bad and doubtful debts i. T-account for bad and doubtful debts
ii. Journal entries for
Bad and doubtful debts expense 2009
Bad and doubtful debts expense 4
Provision for Bad and doubtful debts expense 4
Write-off of accounts receivable
Provision for Bad and doubtful debts 20 Accounts Receivable 20 iii. Bad and doubtful debts expense is included in the operating expenses g.
Credit sales, sales on account b. How do accounts receivable differ from notes receivable?
Notes Receivable arises when the seller asks for a note to replace an Accounts Receivable when the customer requests additional time to pay a past-due account. A promissory note is a written promise to pay a specific amount of money, usually including interest, at a future date. c. What is a contra asset?
An account which offsets another account. A contra-asset account has a credit balance and offsets the debit balance of the corresponding asset. A contra-liability account has a debit balance and offsets the credit balance of the corresponding liability.
Provisions for bad and doubtful debts: Allowance of uncollectible accounts receivable
Provisions for sales returns: estimate sales return
Managers will consider past experience, credit quality of the buyer, the age of the receivable and the economy for these accounts d. Two approaches for estimating uncollectible accounts:
Percentage of sales: It is based on prior experience of the business. It is computed as a percentage of credit sales. It ignores the current balance of the allowance account.
Aging of accounts: Analyzed according to the length of time they remain outstanding e. Why did the company extend credit to customers?
They would not have extended credit if they knew which companies would eventually not pay.
Nikki Ko-Wei Chen
ACCT 610
Gamma 6
Case 8: Pearson plc
Nikki Ko-Wei Chen
ACCT 610
Gamma 6
Case 8: Pearson plc
f. Provision for bad and doubtful debts i. T-account for bad and doubtful debts
ii. Journal entries for
Bad and doubtful debts expense 2009
Bad and doubtful debts expense 4
Provision for Bad and doubtful debts expense 4
Write-off of accounts receivable
Provision for Bad and doubtful debts 20 Accounts Receivable 20 iii. Bad and doubtful debts expense is included in the operating expenses g.