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Issues regaurding receivables
- criteria to extent credit, run credit checks
- establish credit terms
- collection
- factoring - sell receivables
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Direct Write-off method
We right off an account when we know a particular customer cannot pay
this is easy, mostly used for small companies
Doesn't have the best results, doesn't follow the matching principle of GAAP
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Allowance Method
We estimate the amount that is uncollectible when we think it's uncollectible
Accounts are then valued at NRV- Net realizable Value - How much you think you're actually going to collect
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Conservatism
Don't want to overstate our income or assets because it could mislead financial statement users
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Receivables Turnover
Net Credit sales / averae net receivables
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Avg Collection Period
365 / receivables turnover ratio
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Revenue Expenditures
Costs that only benefit the current period
- c:repairs and maintenance expense 300
- d:cash 300
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Capital expenditures
Costs that improve the asset or extend it's useful life
- Asset improvements
- c:delivery truck 5500
- d:cash 5500
- Extraordinary repairs
- c:accum dep - forlift 4500
- d:cash 4500
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Salvage Value
residual value
value of the asset at the end of it's life
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Straight Line Depriciation
Annual Depriciation = (cost-salvage value)/life
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Unite of production Method
find depriciation per unit = (cost - residual value)/total units of production
depriciation expense = depriciation per unit * total units of production used
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Double declining balance method
depriciation expense = (book value*2)/ life
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Depletion
The cost of natural resourses to an expense account
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Amortization
the amount of an intangible asset to transfer to expense
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Patents
exculsive rights to produce and sell a good with one or more unique features
amoritization is computed using the straightline method
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Copyright
exclusive right to pubpish and sell literary, artistic or musical compositions
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Trademark
a name, term, or symbol used to identify a business and its products
these are not amortized
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Goodwill
intangible asset of a business taht is created from such favorable factors as location, product quality, reputation, and managerial skill, allows a business to earn a greater rate of return than normal
this is not amortized
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Bond
a form of an interest bearing note, like a note, a bond requires periodic interest payments with the face amount to be repaid at the maturity date
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Bonds issued at face amount
- c: cash xxx
- d: bonds payable xxx
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Paying interest on a bond
- c: interest expense xxx
- d: cash xxx
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Bonds issued at a discount
- c: cash 96406
- c: discount on BP 3594
- d: Bonds payable 100000
When the market interest rate is higher than the bond interest rate
Amortizing a bond discount
- c:interest expense xxx
- d:Discount on BP xxx
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Bonds issued at a premium
- c:cash 104000
- d:Premium on BP 4000
- d:Bonds payable 100000
When the market interest rate is lower than the bond interest rate
Amortizing a bond premiun
- c:Premium on BP xxx
- d:interest expense xxx
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Bond Redemption
Loss- acts like an expense, recorded if the price paid for the redemption is above the carrying amount
gain- acts like a revenue, recorded if the price paid for the redemtion is below the bond carrying amount
gain/loss on redemption of bond
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Straight line method for amortizing bonds
total of discount or premium/ # of periods
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