copyright 2006 pearson education canada inc. 12-1
TRANSCRIPT
Copyright 2006 Pearson Education Canada Inc. 12-1
Copyright 2006 Pearson Education Canada Inc. 12-2
Outline Receivables Accounts Receivable and Bad Debts Allowance Method Percentage of Sales Method Aging Method Uncollectible Accounts Payables Current Liabilities and Long-Term Debt Other Accounts Corporation Accounting
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Receivables Trade Accounts Receivable Notes Receivable Other Accounts Receivable Loans to employees Refunds receivable Interest receivable
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Accounts Receivable and Bad Debts
Conservatism-
Provide for all possible losses
Bad debts expense- Estimate of uncollectible accounts
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Allowance Method
Percentage of sales method
Accounts receivable aging method
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Percentage of Sales Method
Focuses on the Income Statement and on determining what % of current sales will be uncollectible
Sum of Historical Sales of last 3 years : $2,660,000
Actual uncollectible accounts: $53,200
2% x 1,400,000=$28,000
Bad debt expense 28,000 Allowance for doubtful accounts 28,000
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Aging Method
Focuses on the Balance Sheet and on determining which percentage of accounts receivable will be uncollectible
Uses aging schedule as a basis to calculate the allowance adjustment
Records adjusting entry in a way that the balance of the allowance will reflect the amount shown on the aging schedule
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Aging method Allowance for doubtful accounts Bad debts expense Balance 300 Adj. 442 Adj. 442 742
Bad debts expense 442 Allowance for doubtful accounts 442
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Uncollectible Accounts
WRITING OFF UNCOLLECTIBLE ACCOUNTSWhen there is evidence that an accounts receivable will not
be collected, it is written off by debiting the Allowance for Doubtful Accounts and crediting Accounts Receivable
Allowance for Doubtful Accounts 1,000
Accounts Receivable 1,000
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Uncollectible Accounts
Recovering an Accounts Receivable previously written-off1. The write-off entry is reversed
Accounts Receivable 500 Allowance for Doubtful Accounts 500To reverse the write-off of $500 of Ralf Austin’s account2. A second entry recording the collection of the
Accounts Receivable is made
Cash 500 Accounts Receivable 500
To record the collection of $500 of Ralf Austin’s account
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Current Liabilities Long-Term Debt Other Accounts Commitments and
Contingent Liabilities
PAYABLES
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Current LiabilitiesDebts that are payable within one year Accounts Payable Accrued Liabilities Unearned Revenue Taxes Payable Dividends Payable Deferred Income Taxes Short-term Notes Payable Current Portion of Long-Term Debt
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Long-Term Debt
Portion of a firm’s debt that is payable more than one year in the future
Long-Term Notes Payable Mortgages Payable Bonds Payable Long-Term Lease Obligations Deferred Income Taxes
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Other AccountsDeferred Income Taxes- Timing
differences in reporting depreciation and other items for tax and reporting purposes
Minority Interest-
Value of combined company’s
equity that belongs to those
investors who own a minority
share in the subsidiary company
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Commitments and Contingencies
Headings that usually appear between the liabilities and equity sections of the balance sheet
Commitments- arise when a hospitality firm obligates itself for the payment of amounts based on contractual agreements (e.g, leases, loans)
Contingencies-potential future liability whose existence and amount cannot be definitely established at the present time (lawsuits, tax examinations)
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CORPORATION ACCOUNTING
STOCKHOLDERS’ EQUITY OR SHAREHOLDERS’ EQUITY-
Owners’ Equity in a corporationCommon StockPreferred StockTreasury StockRetained Earnings
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Common Stock and Preferred Stock
Common Stock Ownership in the
corporation Authorized Shares Issued Shares Outstanding Shares
Preferred Stock Preferences upon
earnings Preferences upon
liquidation Authorized Shares Issued Shares Outstanding Shares
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Common stock
Authorized shares- Number of shares that a corporation can sell or issue based on its charter.
Issued shares-Number of shares sold or issued by the corporation.
Outstanding shares-Number of shares owned by the shareholders.
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Stock Split
Objective: bring about the reduction in the market price per share in order to encourage more investors to buy shares of the company
What happens? Reduces the value of common stock and issues a proportionate number of additional shares
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Treasury Stock
When a corporation buys back its own outstanding stock
Reduces the number of shares outstanding Increases earnings per share It may be used for employee stock option plans It might be used as an investment Treasury Stock 20,000 Cash 20,000 To record purchase of 10,000 shares of treasury stock at $2 per share
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3 dividend dates
Declaration date- Dividends are declared by corporation’s Board of Directors.
Dr. Dividends or Retained earnings
Cr. Dividends Payable
Date of Record No entry required. The stockholders registered on the corporation’s stock records as of this date will receive the dividend.
Payment date- Dividend checks are mailed to stockholders
Dr. Dividends Payable
Cr. Cash
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Statement of Retained EarningsShows changes affecting retained earnings during the
accounting periodAdditions Net income Adjustments of prior period’s earningsSubtractions Net loss Declaration of dividends Treasury stock sold below cost Adjustments of prior period’s earnings