AccountingNotesCh4-5.pdf ACCTG 215
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This 3 page Bundle was uploaded by Sara Marie on Wednesday November 5, 2014. The Bundle belongs to ACCTG 215 at University of Washington taught by STEPHAN SEFCIK in Fall. Since its upload, it has received 117 views. For similar materials see Chapter 4 & 5 Notes in Accounting at University of Washington.
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The content was detailed, clear, and very well organized. Will definitely be coming back to Sara for help in class!
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Date Created: 11/05/14
Occupational Fraud the use of one s occupation for personal enrichment through the deliberate misuse of the employing organization s resources internal controls a company s plan to safeguard a company s assets and improve the accuracy and reliability of accounting information SarbanesOxley Act established new guidelines related to auditor cient relations and internal control procedures Collusion when two people act in coordination to circumvent internal controls Cash currency coins checks balances in savingschecking accounts Cash equivaents short term less than three months investments Bank Reconciliation matches the balance of cash in the bank account with the balance of cash in the company s own records timing differences and errors Deposits outstanding cash receipts of the company that have not been added to the bank s record of the company s balance Checks outstanding checks the company has written that have not been subtracted from the bank s record of the company s balance NSF Checks bad checks that must be taken into account when reconciling the company s cash balance Petty Cash Fund minor amount of cash on hand Earnings quality the ability of current net income to help us predict the future performance of a company Free Cash Flow measures earnings quality by adding operating cash flows investing cash flows Declining FCF compared to the trend in net income will likely have lowerquality earnings Credit saes transfer products and services to a customer today while bearing the risk of collecting payment from that customer in the future sales on account Debit E Credit E Net Revenues a company s total revenues minus any amounts for discounts returns and allowances Trade discounts a reduction in the listed price of a product or service Indirectly record sale at the discounted price Sales discounts a reduction in the amount to be paid by a credit customer if the payment is made within a specific period of time incentive for quick payment 210 n30 2 discount within 10 days or full payment in 30 Debit i and Sales Discounts Credit Accounts Receivable Contra Revenue Account how we record the sales discount to keep a record of the total revenue separate from the reduction in the revenue due to quick payment sales discounts returns and allowances Sales return when a customer returns a product we reduce the customer s account balance or issue a cash refund Sales allowance when a seller reduces the customer s balance owed or provides a partial refund because of a product deficiency Debit Sales Allowances Credit Accounts Receivable Net Realizable Vaue accounts receivable should be reported at the amount of cash the firm expects to collect Uncollectible accounts bad debts reduce assets increase expenses bad debt expense decreases net income decreases retained earnings Allowance methods allowing the possibility that some accounts will be uncollectible at some point in the future Percentageofreceivables method estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected Debit Bad Debt Expense Credit Allowance for Uncollectible Accounts Bad Debt Expense the cost of the estimated future bad debts Income Statement Credit Saes Bad debt expense Allowance for uncollectible accounts method recording an adjustment at the end of each period to allow for the possibility of future uncollectible accounts reduces assets increases expenses Represents the amount of accounts receivable we do not expect to collect Debit requires an estimate matching expenses bad debts in the same period as the revenues credit sales they generate Net Accounts Receivable the difference between total accounts receivable and the allowance for uncollectible accounts Aging method a more accurate method than assuming a single percentage uncollectible for all accounts of using a higher percentage for old accounts Direct writeoff method recording bad debt expense at the time we know the account to be uncollectible If the credit sale occurs in a prior reporting period bad debt expense is not properly matched with revenues credit saes accounts receivable will be overstated in the prior period Notes Receivable more formal arrangements than accounts receivable evidenced by a written debt note Receivables turnover ratio the number of times during a year that the average accounts receivable balance is collected Net credit salesaverage accounts receivable Average collection period 365 daysreceivables turnover ratio PercentageofCredit Sales method method that matches bad debts with credit sales by adjusting the allowance for uncollectible accounts for the current year s credit sales that we don t expect to collect rather than adjusting at the end of the year for the percentage of accounts receivable we don t expect to collect Allowed only if the amounts do not differ significantly from estimates using the percentage of receivables method rather than adjusting at the end of the year for the percentage of accounts receivable we don t expect to collect
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