Acct 521 Final EXAM

Gross method:
- Assume customers don't take discounts
- Full/Total amount

Ex:
Accounts Receivable----------5000
Sales R.------------------5000

Net Method:
- Assume customers take discounts

Ex: A/R--------------4950
Sales Rev------------4950

Contra-Revenue account

Just think of sales being lowered due to an offset.

1) Cash and cash equivalents
2) Short-term investments
3) Marketable equity securities
4) Accounts receivable
5) Inventories
6) Deferred income taxes
7) Other current assets

Accrued - Something already incurred, but not yet paid.

Deferred - expenses paid in advance but not yet incurred.

Cash equivalents include:
- Commercial paper
- Money market funds
- U.S. Treasury bills

Remember they are classified at having a maturity date of three months or less from the date of purchase.

Contra-Revenue

Just think of a company's balance sheet when an item of the inventory is returned.

- Revenue decreases

Contra-asset

- Against A/R

End. Bank Balance
+ Deposits in Transit
- Outstanding Checks
= Corrected Balance

End. Book Balance (General Ledger)
+ Bank Collections
- Service Charges
- NSF Checks
= Corrected Balance

- All disbursements, except petty cash are made by check
- Checks should be signed only by authorized individuals
- Separate responsibilities for cash disbursement documents, check authorization, check signing, and record keeping.

Debit the NSF checks as Miscellaneous Expense and service charges as Account Receivable.

GAAP:

- Bank overdrafts are treated as liabilities

IFRS:

- Bank overdrafts may be offset against other cash accounts

Beginning Retained Earnings + Net Income - Dividends = End. Retained Earnings

GAAP:
- Define probable as an event that is likely to occur.
- Both accrued and non-accrued obligations are contingent liabilities
- Requires use of low end of range of equally likely outcomes
- Allow using present value under circumstances

IFRS:

- Defines probable as more likely than not (51%)
- Accrued liabilities are provisions and non-accrued are contingent liabilities
- Use of midpoint of a range of equally likely outcomes
- Requires reporting present value when material

- We adjust who made the mistake (Bank or the company)
- If it doesn't say, assume the bank got it right.

Cash usually paid for small, miscellaneous expenses. It is often combined with cash accounts.

Current Asset.

An asset or liability that is recognized on the balance sheet before it is paid.

- Usually incurred (spent)
- Recognized because of high likelihood of payment

Allowance method:

- DR Bad debt expense-------x
CR A/R--------------------------x

Direct write-off method:
- DR Bad debt expense-------x
CR Allowance uncollect---x

Contra-Equity Account

Yes, but record them in the Investments section of the non-current assets section separate of the amount that is not held for sale.

With recourse:
- Lender goes after you for the amount you owe
- Seller keeps the risk of uncollectibility when A/R is sold to buyer.
Without recourse:
- Buyer takes all the risk of uncollectibility when A/R is sold by seller.

DR Cash and CR A/R when it is what you expect the customer to do.

For the gross method, you're expected to receive the cash in full but if they pay during discount period, we DR cash and Sales discount and CR the A/R.

For the net method, the customer is expected to take the discount. But if the customer doesn't take the discount, we record more cash by DR Cash and CR Interest Revenue and A/R.

You subtract last years deposits outstanding from this deposits outstanding.

- For incorrect bank deposits made to company, you subtract it to get rid of the gain.

When rebate is PAID.

- Only record when it's paid not when it's claimed.
- Claimed just means the rebate has been put in by customer but not yet PAID.

We must have the gross(total) value.

- So if they give us the A/R net allowance of 20,000 and the allowance of 350 for that year, we have to add 20,000+350 to show its gross amount on the t-accounts.

Non trade receivables which are expected to be realized in cash within one year, the length of the operating cycle notwithstanding, are classified as current assets. If collectible beyond one year, non trade receivables are classified as non current assets.

Ex: A/R or Notes receivable

An existing condition involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when future events occur or fail to occur.

Ex: Lawsuit, Guarantee, Warranty, Coupons, Rebate