Receivables and Inventory - Cengage

Receivables and Inventory - Cengage

Receivables and Inventory Chapter 6 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objectives After studying this chapter, you should be able to:

Describe the common classifications of receivables Describe the nature of and the accounting for uncollectible receivables Describe the direct write-off method of accounting for uncollectible receivables Describe the allowance method of accounting for uncollectible receivables Describe the common classifications of inventories

(continued) 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objectives After studying this chapter, you should be able to:

Describe three inventory cost flow assumptions and how they impact the financial statements Compare and contrast the use of the three inventory costing methods Describe how receivables and inventory are reported on the financial statements Financial Analysis: Describe and illustrate accounts receivable and inventory turnover and their use in assessing the management of receivables and inventory

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 1 Describe the common classifications of receivables 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Classifying Receivables Accounts Receivable _______________________

Notes Receivable More formal agreement Includes a _____ and _____ Other Receivables Can include interest receivable, taxes receivable, and receivables from employees or officers 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Promissory Note 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Due Date of a 90-Day Note The maker of the note is Selig Company, and the payee is Pearland Company. The face value of the note is $2,000, and the issuance date is March 16, 20Y7.The term of the note is 90 days, which results in a due date of June 14, 20Y7,as shown: 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Learning Objective 2 Describe the nature of and the accounting for uncollectible receivables 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Uncollectible Receivables Some of the credit sales will be uncollectible The operating expense recorded from uncollectible receivables is called

______________, or ______________, or ______________ 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Uncollectible Receivables Some indications that an account may be uncollectible include the following: The receivable is past due The customer does not respond to the companys

attempts to collect The customer files for bankruptcy The customer closes its business The company cannot locate the customer 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Methods of Accounting for Uncollectible Receivables _________________ : records bad debt expense only when an account is determined to

be worthless _________________ : records bad debt expense by estimating uncollectible accounts at the end of the accounting period 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 3 Describe the direct write-off method of accounting for uncollectible receivables

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Direct Write-Off Method Assume that on May 10 a $4,200 account receivable from Markieff Carson has been determined to be uncollectible Bad debt expense 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Direct Write-Off Method Reinstate accounts receivable Collection of accounts receivable 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 4 Describe the allowance method of accounting for uncollectible receivables

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Allowance Method Required by GAAP for companies with large amount of accounts receivable Estimates the accounts receivable that will not be collected and records bad debt expense for this estimate at the end of each period using an allowance account 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Allowance Method If the total accounts receivable balance is $200,000, the new net realizable value is $170,000 Uncollectible accounts receivable 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Allowance Method

When a customers account is identified as uncollectible, it is written off against the __________ account Net realizable value No affect on net realizable value 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Allowance Method

Reinstating account balance Cash collected 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Estimating Uncollectible Accounts Based on past experiences, industry averages and forecasts of the future Two common methods:

_________ _________ 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Percent of Sales Method Assume that on December 31, 20Y7, the Allowance for Doubtful Accounts for DPS Company has a negative balance of $3,250. In addition, DPS estimates that 3/4% of 2012 credit sales will be uncollectible. Credit sales for

the year is $3,000,000 Bad debt expense 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Aging of Receivables Schedule 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Analysis of Receivables Method Comparing the $26,490 estimate of uncollectible account

with the unadjusted balance in the allowance account, we determine the adjustment needed for bad debt expense. Assuming that the unadjusted balance in the allowance account is a negative $3,250, the amount to be added to this balance is $23,240 Bad debt expense 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Comparing Estimation Methods

___________ _______ ___________ _______ 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 5

Describe the common classifications of inventory 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Merchandise Inventory Merchandise inventory: Merchandise on hand (not sold) at the end of the period It is a _____ asset

Inventory sold becomes the ________________ 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Size of Merchandise Inventory for Merchandising Businesses 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Manufacturing Inventories ________________

Raw material used to make the product ________________ Cost of partially completed products ________________ Total cost of completed goods: material, labor, manufacturing overhead 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Manufacturing Inventories 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Footnote Disclosure of Manufacturing Inventories The Hershey Company recently reported inventories of $815,863 (in thousands) as follows: 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Learning Objective 6 Describe three inventory cost flow assumptions and how they impact the financial statements 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Inventory Cost Flow Units Purchased Units Sold

Identical units purchased at different unit costs during a period When units are sold, it is necessary to determine the cost of units sold Cost of units sold can be determined using ________________ 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Inventory Methods

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Specific Identification Method If the merchandise can be identified with a _____________, the specific identification method can be used Each unit of merchandise can be identified with a specific purchase price Only practical if each unit has a unique identification number (e.g., VIN for an automobile)

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Specific Identification Method 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. First-In, First-Out (FIFO) 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Last-In, First-Out (LIFO) Purchases May 10 May 18 Balance Sheet May 24

May 31 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Average Cost Method Purchases May 10 May

18 May 24 Balance Sheet May 31 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Use of Inventory Costing Methods 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 7 Compare and contrast the use of the three inventory costing methods 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Comparing Methods - Rising Prices

METHOD I/S EFFECT B/S EFFECT RESULT FIFO ___________

___________ __________________ __________________ ________________ ________________ LIFO ___________

___________ __________________ __________________ ________________ ________________ AVERAGE ___________

___________ __________________ __________________ ________________ ________________ 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 8

Describe how receivables and inventory are reported on the financial statements 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Receivables and Inventory in Balance Sheet 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Accounts Receivables

Classified as a current asset if collection is expected within ___ year 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Inventory Valuation The method of determining the cost of the inventory should be shown on the balance sheet There are two methods of inventory valuation: Valuation at __________ Valuation at __________

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Valuation at Net Realizable Value Damaged inventory is reported at the net realizable value Net Realizable Value = ____________________ ___________________ Direct costs of disposal include selling expenses such as special advertising or sales commissions on the sale

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Valuation at Net Realizable Value To illustrate, assume the following data about an item of damaged merchandise: The merchandise should be valued at its net realizable value of $650 as shown below 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Valuation at Lower of Cost or Market Can be applied in one of three ways: ___________________ ___________________ ___________________ 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Determining Inventory at Lower of Cost or Market

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 9 Financial Analysis: Describe and illustrate accounts receivable and inventory turnover and their use in assessing the management of receivables and inventory 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Accounts Receivable and Inventory

Turnover The accounts receivable and inventory turnovers are useful in assessing a companys management of its receivables and inventory 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Accounts Receivable Turnover Ratio Accounts Receivable Turnover =

__________________ Average Accounts Receivable ______________+________________ 2 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Accounts Receivable Turnover Ratio Assume the following data for Wolf Custom Furniture Company for a recent year

Net sales Beginning receivables Ending receivables Accounts Receivable Turnover = = $18,750,000

1,200,000 1,800,000 ___________ [( _________+ ________) __ ] ___________ ___________ = _____

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Number of Days Sales in Receivables Assume the following data for Wolf Custom Furniture Company for a recent year Net sales Beginning receivables Ending receivables Number of Days Sales in Receivables

= = $18,750,000 1,200,000 1,800,000 ___________ ________________________ ___________ ___________

= _____ days 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Inventory Turnover Ratio Inventory Turnover = _____________________ Average Inventory

_______________+ ________________ 2 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Inventory Turnover Ratio Assume the following data for Wolf Custom Furniture Company for a recent year Cost of merchandise sold Beginning inventory

Ending inventory Inventory Turnover = = $12,000,000 600,000 900,000

___________ [(_________+ _________) __ ] ___________ ___________ = ______ 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Number of Days Sales in Inventory Assume the following data for Wolf Custom Furniture Company for a recent year Cost of merchandise sold Beginning inventory Ending inventory Number of Days Sales = in Inventory

= $12,000,000 600,000 900,000 _________ ____________ _________ ___________ = _____ days

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. End of Chapter 6 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.

Recently Viewed Presentations

  • Now More than Ever John VanDenBerg - NH Dept of Education

    Now More than Ever John VanDenBerg - NH Dept of Education

    Mastricola Elementary School Behavior Matrix Playground Expectations Amherst Street Elementary School Playground Follow adult directions Be a good sport Use kind words Play fair Follow your Pledge Return everything you borrowed Walk quietly into the building Use playground equipment properly...
  • A View of the Cell

    A View of the Cell

    Cellular Boundaries. Cell wall = fairly rigid structure located outside the plasma membrane. Provides additional support and protection. Found in plant cells, fungi, most bacteria, and some protists. Plant cell walls are made up of fibers of cellulose. Forms a...
  • Il Neorealismo - WordPress.com

    Il Neorealismo - WordPress.com

    1945-1955 Il Neorealismo A cura del prof. Marco Migliardi Le origini Il termine venne usato già negli anni '30 per definire alcuni romanzi che prestavano maggior attenzione alla realtà sociale: "Gli Indifferenti" di Moravia, "Gente in Aspromonte" di Alvaro Venne...
  • Managing Agent Platforms with SNMP

    Managing Agent Platforms with SNMP

    Integrated with industry-standard management tools. HP Openview Schedule for Completion Managing Agent Platforms with SNMP Brian Remick Research Proposal Defense * Overview Motivation Agent Management Requirements Network Management Research Overview Architecture Research Plan Schedule and Questions Motivation Agent platforms are...
  • Final Concepts for Chapter 9 Mendelian Genetics

    Final Concepts for Chapter 9 Mendelian Genetics

    Test Cross Do the punnett squares for each case: GG x gg Gg x gg Test Cross All offspring produced should show the dominant characteristics if the dominant parent is pure (GG) for the trait. ttrr ttRr Ttrr TtRr ttRr...
  • Todays Quranic verse God has revealed (from time

    Todays Quranic verse God has revealed (from time

    It can produce wide range of biological substances active against both unwanted invaders and the tissue Macrophages can release Enzymes (neutral proteases & acid hydrolases), Plasma proteins (complement components & coagulating factors), Reactive metabolites of oxygen, Eicosanoids, Cytokines, Growth factors...
  • Child Welfare Demonstration Project (CWDP) Family Engagement Study

    Child Welfare Demonstration Project (CWDP) Family Engagement Study

    Illegible letters and numbers are misread or skipped resulting in inaccurate and missing information that will not be included in the study *We share these reminders because we know that it takes a lot of time . and effort to...
  • 2017-06-22 P09-TPWD_GIS_MLDP - Texas

    2017-06-22 P09-TPWD_GIS_MLDP - Texas

    We've successfully used an online database to help manage the growth in the program. TWIMS was launched in 2008-09, and helped increase efficiency and improve our data management. But it lacked geospatial capabilities, which staff recognized could present an enormous...