Accounting Lecture 7 Notes
Accounting Lecture 7 Notes ACCT 225 001
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This 2 page Class Notes was uploaded by Jeremiah Waller on Thursday October 22, 2015. The Class Notes belongs to ACCT 225 001 at University of South Carolina taught by Leslie Brunner in Summer 2015. Since its upload, it has received 32 views. For similar materials see Introduction to Financial Accounting in Accounting at University of South Carolina.
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Date Created: 10/22/15
Accounting Lecture 7 Accounts amp Notes Receivable Terms Liquidity How fast an asset can be turned into cash Cash is the most liquid asset AccountTrade Receivable Selling the customer something on credit that they now owe Sales Discount When a customer makes a purchase on an account they may be offered a discount to encourage early payment Sales discount is a Contra Revenue Account which means that its balance is subtracted from sales revenue Uncollectible Accounts An asset that has been removed and written off and now recognized as an expense When to record that expense is determined by whatever method is used Direct Writeoff Method The bad debt expense is recognized when the account is writtenoff Allowance Method Splits the account into two entries 1 Record an estimate of bad debt expense 2 Writeoff receivables when they become uncollectible Allowance is a Contra Asset that holds a credit balance so when it is subtracted from Accounts receivable the difference or the net realizable value represents an estimate of the cash value of the Account receivable Receivables Turnover Ratio Net Credit Sales Average Receivables Average Receivables is Beginning Receivable Ending Receivable 2 The receivable turnover ratio represents the number of times during a period that the average Account receivable balance is collected Average Collection Period 365 Days Receivables Turnover Ratio Companies strive for high receivable turnover ratios and low average collection periods Payee The seller The company that will receive the principle amp interest Maker of the Note The customer or borrower who will pay the interest amp principle Net Sales Gross sales Discounts Returns Allowances 210 Net30 the 2 is the discount percentage the 10 is the number of days in the discount period net means that the full amount is due if the discount is not used the 30 represents the maximum days in the credit period