Accounting Accounts Receivable 0

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CHAPTER 6

Objectives

Identify different types of long-term operational assets.

Determine the cost of long-term operational assets.

Explain how different depreciation methods affect financial statements.

Determine how gains and losses on disposals of long-term operational assets affect financial statements.

Explain how expense recognition for natural resources (depletion) affects financial statements.

Explain how expense recognition for intangible assets (amortization) affects financial statements.

Understand how expense recognition choices and industry characteristics affect financial performance measures.

Long-lived Assets
Tangible
Plant., Property, Equipment (depreciate); Natural Resources (deplete); Land
Intangible
Identifiable Useful Lives
Indefinite Useful Lives
Intangible assets or amortized verses depreciated or depleted

Life Cycle of Operational Assets
Acquire Funding
Buy Assets
Use Asset
Retire Asset

Depreciation

Double-declining-balance – produces more depreciation expense in the early years of an asset’s life, with a declining amount of expense in later years. Determine the straight-line rate of depreciation.

Multiply the straight-line rate times two.
Multiply the double-declining rate by the book value of the asset at the beginning of the period.

Straight-line method - the same amount of depreciation is taken each accounting period. (Asset Cost – Salvage Value) / Useful Life = Depreciation Expense

Units-of-Production – produces varying amounts of depreciation in different accounting periods depending upon the number of units produced. (Cost – Salvage Value) / Total Estimated Units of Production = Depreciation Charge per Units of Production Depreciation Charge * Units of Production = Depreciation Expense

Book Value = Cost – Accumulated Depreciation

Depletion of Natural Resources follows units of production model

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Goodwill
The excess of cost over fair value of net tangible assets acquired in a business acquisition.

Historical Cost Concept
An asset is recorded at the amount paid for it, including costs necessary to get the item to the location and condition for its intended use.

CHAPTER 5

Objectives

Explain how the allowance method of accounting for uncollectible accounts affects financial statements.

Determine uncollectible accounts expense using the percent of revenue method.

Determine uncollectible accounts expense using the percent of receivables method.

Explain how accounting for notes receivable and accrued interest affects financial statements.

Explain how accounting for credit card sales affects financial statements. Identify and measure the cost of extending credit to customers.

Percent of Receivables Method
Alternative to percent of revenue method
Focuses on estimating the most accurate amount for the balance sheet account, Allowance for Doubtful Accounts The longer an account receivable is outstanding, the less likely it is to be collected Aging of accounts classifies all receivables

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Characteristics of Notes Receivable

Maker
Borrower responsible for paying note on due date

Payee
Loans money to maker; expects payment of principal and interest

Principal
Amount of money loaned

Credit Card Sales

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Accounts Receivable Turnover = Sales / Accounts Receivable

Average Days to Collect Accounts Receivable = 365 / Accounts Receivable Turnover

Operating Cycle
The operating cycle is the average time it takes a business to convert inventory to accounts receivable plus the time it takes to convert accounts receivable back into cash. It is the average number of days to collect accounts receivable + the average number of days to sell inventory.

Net Realizable Value- the amount of receivables a company estimates it will...
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