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Outline Receivables Accounts Receivable and Bad Debts Allowance Method Percentage of Sales Method Aging Method Uncollectible Accounts Payables Current Liabilities and Long-Term Debt Other Accounts Corporation Accounting


Receivables Trade Accounts Receivable Notes Receivable Other Accounts Receivable Loans to employees Refunds receivable Interest receivable


Accounts Receivable and Bad Debts

Conservatism-

Provide for all possible losses

Bad debts expense- Estimate of uncollectible accounts


Allowance Method

Percentage of sales method

Accounts receivable aging method


Percentage of Sales Method

Focuses on the Income Statement and on determining what % of current sales will be uncollectible

Sum of Historical Sales of last 3 years : $2,660,000

Actual uncollectible accounts: $53,200

2% x 1,400,000=$28,000

Bad debt expense 28,000 Allowance for doubtful accounts 28,000


Aging Method

Focuses on the Balance Sheet and on determining which percentage of accounts receivable will be uncollectible

Uses aging schedule as a basis to calculate the allowance adjustment

Records adjusting entry in a way that the balance of the allowance will reflect the amount shown on the aging schedule


Aging method Allowance for doubtful accounts Bad debts expense Balance 300 Adj. 442 Adj. 442 742

Bad debts expense 442 Allowance for doubtful accounts 442


Uncollectible Accounts

WRITING OFF UNCOLLECTIBLE ACCOUNTSWhen there is evidence that an accounts receivable will not

be collected, it is written off by debiting the Allowance for Doubtful Accounts and crediting Accounts Receivable

Allowance for Doubtful Accounts 1,000

Accounts Receivable 1,000


Uncollectible Accounts

Recovering an Accounts Receivable previously written-off1. The write-off entry is reversed

Accounts Receivable 500 Allowance for Doubtful Accounts 500To reverse the write-off of $500 of Ralf Austin’s account2. A second entry recording the collection of the

Accounts Receivable is made

Cash 500 Accounts Receivable 500

To record the collection of $500 of Ralf Austin’s account


Current Liabilities Long-Term Debt Other Accounts Commitments and

Contingent Liabilities

PAYABLES


Current LiabilitiesDebts that are payable within one year Accounts Payable Accrued Liabilities Unearned Revenue Taxes Payable Dividends Payable Deferred Income Taxes Short-term Notes Payable Current Portion of Long-Term Debt


Long-Term Debt

Portion of a firm’s debt that is payable more than one year in the future

Long-Term Notes Payable Mortgages Payable Bonds Payable Long-Term Lease Obligations Deferred Income Taxes


Other AccountsDeferred Income Taxes- Timing

differences in reporting depreciation and other items for tax and reporting purposes

Minority Interest-

Value of combined company’s

equity that belongs to those

investors who own a minority

share in the subsidiary company


Commitments and Contingencies

Headings that usually appear between the liabilities and equity sections of the balance sheet

Commitments- arise when a hospitality firm obligates itself for the payment of amounts based on contractual agreements (e.g, leases, loans)

Contingencies-potential future liability whose existence and amount cannot be definitely established at the present time (lawsuits, tax examinations)


CORPORATION ACCOUNTING

STOCKHOLDERS’ EQUITY OR SHAREHOLDERS’ EQUITY-

Owners’ Equity in a corporationCommon StockPreferred StockTreasury StockRetained Earnings


Common Stock and Preferred Stock

Common Stock Ownership in the

corporation Authorized Shares Issued Shares Outstanding Shares

Preferred Stock Preferences upon

earnings Preferences upon

liquidation Authorized Shares Issued Shares Outstanding Shares


Common stock

Authorized shares- Number of shares that a corporation can sell or issue based on its charter.

Issued shares-Number of shares sold or issued by the corporation.

Outstanding shares-Number of shares owned by the shareholders.


Stock Split

Objective: bring about the reduction in the market price per share in order to encourage more investors to buy shares of the company

What happens? Reduces the value of common stock and issues a proportionate number of additional shares


Treasury Stock

When a corporation buys back its own outstanding stock

Reduces the number of shares outstanding Increases earnings per share It may be used for employee stock option plans It might be used as an investment Treasury Stock 20,000 Cash 20,000 To record purchase of 10,000 shares of treasury stock at $2 per share


3 dividend dates

Declaration date- Dividends are declared by corporation’s Board of Directors.

Dr. Dividends or Retained earnings

Cr. Dividends Payable

Date of Record No entry required. The stockholders registered on the corporation’s stock records as of this date will receive the dividend.

Payment date- Dividend checks are mailed to stockholders

Dr. Dividends Payable

Cr. Cash


Statement of Retained EarningsShows changes affecting retained earnings during the

accounting periodAdditions Net income Adjustments of prior period’s earningsSubtractions Net loss Declaration of dividends Treasury stock sold below cost Adjustments of prior period’s earnings

copyright 2006 pearson education canada inc. 12-1

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