Principles of Accounting 1 chapter 9 notes

Topics: Accounts receivable, Balance sheet, Money Pages: 7 (2206 words) Published: April 18, 2014
Accounts Receivable:

an amount due from another party
two of the most common are: Accounts Receivable &Notes Receivable others are:
interest receivable, rent receivable, tax refund receivable, and receivables from employees Accounts Receivable- are amounts due from customers for credit sales when a company does extend credit directly to customers it:

1. Maintains a separate account receivable for each customer 2. accounts for bad debts from credit sales
Recognizing Accounts Receivable:
AR occurs from credit sales to customers
Sales on Credit:
credit sales are recorded by increasing(debiting) accounts receivable a company must maintain a separate account for each customer that tracks how much that customer purchases, pays, and owes this info is used to send bills to customers and for other business analyses companies that extend credit directly to their customers keep a separate account receivable for each one of them the general ledger continues to have single AR accounts along w/ other financial statement accounts Accounts Receivable Ledger- a supplementary record that is created to maintain a separate account for each customer Schedule of Accounts Receivable- the balance of the AR account in the general ledger equals the total of its balances in the ARC if a customer owes interest on a bill, we debit interest receivable and credit interest revenue for that amount Credit Card Sales:

many companies allow their customers to use third party credit and debit cards gives customers the ability to make purchases without cash or checks once credit is established with a company or bank, customers don’t have to open accounts w/ every store these cards allow customers to make single monthly payments instead of several payments to different creditors nd can defer payments sellers allow customers to use cards instead of granting credit immediately b/c 1. seller doesn’t have to evaluate each customer's credit standing or make decisions about who gets credit and how much 2. the seller avoids the risk of extending credit to customers who cannot or do not pay 3. the seller usually gets cash from the card company sooner than if it granted credit directly to customers 4. a variety of credit options for customers offers a potential increase in sales volume nearly all DC, and some CC , credit a sellers cash account immediately the seller deposits a copy of each card sales receipt in its bank account just like it deposits a customer's check the majority of CC require the seller to remit a copy of each receipt to the card company the seller has an AR from the card company until the payment is received seller pays a fee for services provided by the card company, from 1%-5% the procedures used in accounting for credit sales depend on whether cash is received immediately on deposit or cash receipt is delayed until the credit card company makes the payment Cash Received Immediately on Deposit: pg 363

Cash Received Some time after Deposit: pg 363
some firms report credit card expense to the INS as a type of discount deducted from sales to get net sales others classify it as a selling or administrative expense
Installment Sales and Receivables:
many companies allow their credit customers to make periodic payments over several months which are called Installment accounts(or finance) receivable Installment accounts receivable- amounts owed by customers from credit sales for which payment is required in certain amounts over a period of time source documents include sales slips or invoices describing sales transactions customers are usually charged interest

IAR can have credit periods of more than 1 yr and are classified as current assets if the seller usually offers the customers these terms Valuing Accounts Receivable-Direct Write-off Method:
a company does not expect its customers to pay what they promised when the customer is granted credit these accounts become Uncollected Accounts (bad debts)
the total amount of...
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