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Acc 200: chapter 6 Current Assests

by: Carly Rocco

Acc 200: chapter 6 Current Assests ACCT 200

Marketplace > University of Tennessee - Knoxville > Accounting > ACCT 200 > Acc 200 chapter 6 Current Assests
Carly Rocco
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what does it really mean to have something "on account" ? chapter 6 accounts receivable, notes receivable, interest rates, and cost of inventory.
Foundations of Accounting - 43530 - ACCT 200 - 004
Ellen Anderson
Class Notes
Intro to Accounting, Chapter6, account, anderson, current assets, inventory LIFO FIFO




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This 2 page Class Notes was uploaded by Carly Rocco on Friday October 14, 2016. The Class Notes belongs to ACCT 200 at University of Tennessee - Knoxville taught by Ellen Anderson in Fall 2016. Since its upload, it has received 2 views. For similar materials see Foundations of Accounting - 43530 - ACCT 200 - 004 in Accounting at University of Tennessee - Knoxville.

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Date Created: 10/14/16
Chapter 6 Current Assets Review Chapter 2&3 concepts on Receivables, current assets, and Long-term assets  New information about receivables o Accounts receivable (current assets) o Notes Receivable (current of long- term assets) o Interest receivable (current assets)  In chapter 6 we learn that the number found in accounts receivable is actually a lie  Accounts receivable: uncollectible o By selling “on Account” a business takes the risk that they will never get the cash. o Uncollectibility risk can be reduced by:  Refusing to sell on account (usually done by small businesses)  Transferring collection risk to credit card companies. ( the business usually pays a 5-10% transaction fee  Transferring collection risk to a Factor (a company that buys receivables) o When a business keeps the risk they are required to report a estimate and report each period of how much of the receivable it will NOT collect  At the end of each accounting period the business estimates its risk o This is done on the Balance Sheet Current assets Accounts receivable -Allowance doubtful account (the uncollectible) = Net realized value  Notes Receivables o A note is an unconditional promise with: 1. Principal (face) amount 2. Stated due (maturity) date 3. Interest rate on face amount of the term of the note 4. Term: from issuance to maturity o Notes receivables are generated when a business converts an open account receivable to a formal note, or they lend money to another business.  This is from the lenders perspective, so when business A sells goods on account to business B , Business A records it as a Down Account Receivable and Up notes receivable. Business B records it as Up sales Revenue and Up account receivable. o Notes payable are generated when a business is required to convert an open account payable to a formal note, or they barrow money  Interest Rates o To find the interest rate multiple: Principle * Rate* time o *the time is ALLWAYS divided by 360*  Cost of inventory: this is everything to a business o Current assets on the balance sheet until goods are sold o Cost of goods sold expense on the income statement when goods are sold *it has to be one of the two above. Sold or unsold* Most businesses cannot identify which unit they have sold, so they must choose a cost flow method  The Average cost method: each unit cost the same and the units sold were sold in no particular order Cost of goods available for sale / Goods available for sale Multiple the average with the amount of units sold.  FIFO (first-in-first-out) method: the oldest unit are the ones that were sold first. o This is how real businesses operate, but many businesses do not use it, they use LIFO.  LIFO (last-in-fist-out): the newest units are the first units that were sold. o This s used by most businesses because it results in less income tax.


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