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ACG 2021

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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  1. ACG 2021 Chapter 5 Summary

  2. Short-Term (Trading) Investments • 3 Transactions • Initial purchase • Period End Adjustment • Sale of Investment

  3. 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

  4. Note Receivable • 3 Transactions • Issuance of Note • Accrual of Interest • Collection of Note

  5. 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

  6. 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

  7. 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

  8. % 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

  9. 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

  10. 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

  11. 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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