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ACG 2021. Chapter 5 Summary. Short-Term (Trading) Investments. 3 Transactions Initial purchase Period End Adjustment Sale of Investment. Reporting ST Investments. Year of Purchase Balance Sheet Market Value of Investment Income Statement Unrealized Gain or Loss

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ACG 2021

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ACG 2021

Chapter 5

Summary


Short-Term (Trading) Investments

  • 3 Transactions

    • Initial purchase

    • Period End Adjustment

    • Sale of Investment


Reporting ST Investments

  • Year of Purchase

    • Balance Sheet

      • Market Value of Investment

    • Income Statement

      • Unrealized Gain or Loss

      • Dividend Revenue (if received)

  • Year of Sale

    • Balance Sheet

      • Investment balance is removed -0-

    • Income Statement

      • Gain or Loss on Sale

        • Based on Ending Market Value from previous period


Note Receivable

  • 3 Transactions

    • Issuance of Note

    • Accrual of Interest

    • Collection of Note


Reporting Note Receivable

  • Year of Issuance

    • Balance Sheet

      • Note Receivable owed to Company

      • Interest Receivable

    • Income Statement

      • Interest Revenue for Accrued Interest

  • Year of Collection

    • Balance Sheet

      • Note Receivable is collected -0-

      • Interest Receivable is collected -0-

    • Income Statement

      • Interest Revenue for partial period


Accounts Receivable

  • Represents Amount owed from Customers

  • Allowance for Doubtful Accounts

    • Contra- Asset Account

    • Represents Amount we Expect NOT to collect from Customers

  • Net Accounts Receivable or Net Realizable Value

    • Accounts Receivable – Allowance for Doubtful Accounts

    • Represents what we Expect to collect


Allowance for Doubtful Accounts

  • Matching Principle Requires Estimate

    • Expense: Amount of Sales NOT collected

  • Two Estimation Techniques:

    • % of Sales

    • Aging of Accounts Receivable

  • One Non-Estimation Technique

    • Direct-Write Off


% of Sales

  • Estimates the amount of the Expense

    • Amount of Credit Sales that we expect NOT to collect

    • Once computed (Credit Sales x %)

      • Uncollectible Accounts Expense xxxxxx

      • Allowance for Doubtful Accounts xxxxxxx


Aging of Receivables

  • Estimates the Amount of Receivables we expect NOT to collect

    • That is a definition of what?

    • Once Computed:

      • You have estimated the ENDING Balance of the Allowance for Doubtful Accounts

      • Determine the Beginning Balance

      • Make the adjustment

        • Usually

          • Uncollectible Accounts Expense xxxxxx

          • Allowance for Doubtful Accounts xxxxxxx


Direct Write-offs

  • We know with Certainty that we won’t be collecting a certain account:

  • Reduce the Allowance Account &

  • Reduce the Accounts Receivable Account

    • Allowance for Uncollectible Accounts xxxxx

    • Accounts Receivable xxxx


Ratios

  • Acid-Test

    • Similar to Current Ratio but….

    • (Cash + ST Investments + Accounts Receivable) / Current Liabilities

  • Day’s Sales in Receivable

    • Average Accounts Receivable / Day’s Avg. Sales


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