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16 Cards in this Set
- Front
- Back
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RECEIVABLES
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Accounts receivable
Short term credit 30 – 60 days Notes receivable Longer term May be 1 year or more Other receivables |
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UNCOLLECTIBLE RECEIVABLES
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2 methods to acknowledge uncollectible accounts expense
Direct write-off Allowance method |
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DIRECT WRITE-OFF
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Bad debt expense recorded when account determined to be worthless.
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ALLOWANCE METHOD
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Bad debt expense estimated at end of accounting period.
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How would estimating bad debt expense affect financial statements?
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ADA goes down RE goes down
BDA goes down |
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How would writing off an account under the allowance method affect financial statements?
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AR goes down ADA goes down equally
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What happens if an account previously written off is subsequently collected?
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Reverse the writeoff
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ESTIMATING UNCOLLECTIBLES
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2 methods to estimate uncollectibles
Method #1 Based on % of sales Method #2 Based on analyzing receivables |
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PERCENT OF SALES
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Bad debt expense is estimated by taking a percentage of period sales.
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ANALYZING RECEIVABLES
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Bad debt expense is estimated by taking a percentage of overdue accounts.
Allowance is adjusted to a credit balance equal to the bad debt expense estimate. |
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TYPES OF INVENTORY
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Inventories differ between merchandisers and manufacturers
Merchandisers Purchase inventory for resale Do not make goods for resale |
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MANUFACTURING INVENTORIES
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Materials inventory
Raw material used to make product Work-in-process inventory Cost of partially completed products Finished goods inventory Total costs of completed goods Materials Labor Factory overhead |
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How is cost of inventory determined?
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3 methods to calculate cost
First-in-first-out (FIFO) Last-in-last-out (LIFO) Average |
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FIFO
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Under FIFO, the first goods purchased are assumed to be the first goods sold.
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LIFO
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Under LIFO, the last goods purchased are assumed to be the first goods sold.
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AVERAGE
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With Average cost, the average purchase cost is cost of merchandise sold.
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