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16 Cards in this Set

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