receivables and sales study guide

LO 5-1 Recognize accounts receivable at the time of credit sales Credit Sales and Account Receivable -Explain, what is a credit sale? -Provide examples of Credit Sale? - Explain the different methods a credit sale can be recorded? What is Accounts Receivable? - Provide examples of Accounts Receivable? Now explain Service Revenue? -Provide an example of Service Revenue? How does Credits Sales and Account Receivable relate to Cash Basis and Accrual Basis? -Provide an example of how it used? L05-2 Calculate net revenues using returns, allowances, and discounts. Other Types of Receivables There are many types of receivables: Please explain each of them below: (1) (2) (3) We are going to examine this types of transactions that can affect a company sell of goods or services to a customer: (1) Trade discounts: (2) Sales Returns: (3) Sales Allowances: (4) Sales discounts: Explain in detail, how do we calculate net revenue: How does Contra Revenue affect an account? L05-3 Establish an allowance for uncollectible account Can you explain where Accounts receivable is reported on which Financial Statement? Then explain if it is an Asset, Liability, or Owner's Equity? Generally Accepted Accounting Principles (GA.AP) requires that we account for what's called the Under the allowance method, a company reports Reason why: Explain how future uncollectible are handled? Explain Bad Debt Expense: Which Financial Statement is Bad Debt Expense reported on? How is Bad Debt Expense used in a real-life scenario? LO5-4 Write off accounts receivable as uncollectible When writing-off the account receivable what effect do it have? Does it affect any Financial Statement, if so, please explain? LO 5-5 Adjust the allowance for uncollectible accounts in subsequent years. Why is the aging method applied for estimated uncollectible accounts? LO 5-6 Contrast the allowance method and direct write-off method when accounting for uncollectible accounts What is the direct write-off method? Why is it emphasized? It is used primarily for Provide an example of how it is used? L05-7 Account for notes receivable and interest revenue Are notes receivable to Accounts Receivable? If so, please explain? We have to calculate interest for accounts receivable. Listed below is the formula: Interest = Face Value * Annual Interest Rate * Fraction of the year L05-8 Calculate key ratios investors use to monitor a company's effectiveness in managing receivables Receivables Turnover Ratio Explain Receivables Turnover Ratio- Formula: How does Receivables turnover affect a business? LO 5-1 Recognize accounts receivable at the time of credit sales 1. Morton Company had the following select transactions. April 1, 2015 Account Remington Company's 1-year, 12% note in settlement of a $25,000 account receivable. July 1, 2015 Loaned $15,000 cash to Jenny Green on a 9 -month, 10% note Dec. 3,2015 Accrued interest on all notes receivable. Apr. 12016 Received principal plus interest on the Remington note. Apr. 1, 2016 Jenny Green dishonored its note: Morton expects it will eventually collect. Instructions: Prepare a journal entries to record the transactions. Morton prepares adjusting entries once a year on December 31 . LO 5-1 Recognize accounts receivable at the time of credit sales 2. A credit sale of $3,600 is made of July 15, terms 2/10,n/30, on which a return of $200 is granted on July 18. What amount is received as payment in full on July 24. LO 5-1 Recognize accounts receivable at the time of credit sales 3. Assume Kade Company has the following reported amounts: Sales Revenue $831,000 Sales Return and Allowances $24,450 Cost of Goods Sold $537,900 Operating Expenses $179,300 A. Compute Net Sales: B. Compute Gross Profit: C. Compute Income from Operation: D. Compute the Gross Profit Rate: LO 5-1 Recognize accounts receivable at the time of credit sales 4. Conrad reported the following balances on June 30,2015 Sales Revenue $16,200 Sales Return and Allowance $600 Sales Discount $300 Cost of Goods Sold \$7,500 What is the Net Sales for the month: L05-2 Calculate net revenues using returns, allowances, and discounts. 5. Precision Musical Instruments, merchandisers of musical instruments, has provided the following details: Credit Terms are 4/20,n45,FOB shippisg point. Calculate the net cost of imventory parclasad assuming that thare are no other inventory related transactions during the month Aswume that the parpetual intentory aystem is unad? Explain Freight -in before starting calculations LO5.3 Eatablinh an allowanee for ancollectible acesunt 6. In 2015, Chandler Company had set credit sales of 51,125,000. On Janary 1, 2015, Allowance for Doubtfal Accouats had a credit balance of 527,000. During 2015, 542,000 of uncollectible accounts receivable were written off Pat experienct indicates that the allowanct should be 10% of the balance in receivables (percertage of receivables basis). If the acceunts racensable balasce at Decamber 31 was $380,000, what is the raquitred adjutmenet to tha Allowance for Doubtful Accounts at December 31, 2015 ? A. $23,000 LO5-4 Write off accounts receivable as uncollectible 7. Using the following information: During 2015, sales on account were $145,000 and collections on account were $100,000. Also during 2015, the company wrote off $4,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that uncollectible accounts should be estimated at $40,000. Bad debt expense for 2015 is: A. $4,000 B. $5,000 C. $9,000 D. $40,000 LO 5-6 Contrast the allowance method and direct write-off method when accounting for uncollectible accounts S. The following information is from the records of Mountainview Camera Shop: The company uses the direct-write-off method for bad debt. What is the amount of bad debts expenses? A. $40,000 B. 561,000 C. $85,000 D. $16,000 LO5-7 Account for notes receivable and interest revenue 9. The interest charged on a $90,000,3-month note payable, at the rate of $%, would be? A. 57,200 B. $3,600 C. $1,800 D. $1,200 10. A retail store credited the Sales Revenue account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenve account amounted to $630,000, what is the amount of the sales taxes owed to the taxing agency? A. $600,000 B. $630,000 C. 531,500 D. $30,000 LO5-\$ Calculate key ratios investors use to monitor a company's effectiveness in managing receivables 11. Trinity Bikes Shop is a retail store that sells biking equipment and bikes. Due to declining cash sales, John, the CEO, decides to extend credit sales to all his customers. In the fiscal year ended December 31,2017 , there were $100,000 gross credit sales, and returns of $10,000. Starting and ending accounts receivable for the year were $10,000 and $15,000, respectively. John wants to know how many times his company collects its average accounts receirable over the year. 12. What is the Average Collection Period