AB113 Unit 71 Welcome to AB113 Accounting For Non-Majors Unit 7 Professor David Levenstam Unit 7 Seminar

AB113 Unit 72 Welcome to AB113 Accounting For Non-Majors Unit 7 Professor David Levenstam Unit 7 Seminar

AB113 Unit 73 Reading: Survey of Accounting, Chapter 6 Author: Warren Tech Support (or free online) Contact info: – –AIM: LFCCEconinstruct (sign up for AIM at –Office Hours: Wednesdays 8-10 ET When ing, please include your full name & course number (AB113) Reading, Help & Contact

4 This Week’s Assignments Discussion (Don’t forget to post your initial response by Saturday! :-)) Quiz (You can take only once.) Homework Assignment: Submit to Dropbox We have an Excel template in Doc Sharing for each homework set Templates show you wrong answers (*) :-)

AB113 Unit 75 Quiz Weeks worth 20 each for a total of 160 (16% of your grade) 10 multiple-choice questions You can take it only once You have 1 hour You can see the results 7 days after a quiz closes

Please Read the Announcements! :-) Located on the Course Home page Contain important administrative and accounting material Please check the announcements and the syllabus first for administrative questions you might have AB113 Unit 76

Please Read My “Hi Students” Posts! :-) Typically located early on the board Occasionally come later too Could say “Hi Class” or “Warning, Warning, Danger, Will Robinson!!” :-D Please give my tired old eyes a break and LABEL your multi-part answers! :-) AB113 Unit 77

Jing Links and Scripts To help you with the homework the course leads have created some voice presentations called Jings. You can find all the Jings in Doc Sharing by downloading the file named AC113-AB113 Jing Links.docx. After downloading, click on the link for this week’s chapter to see and hear the presentation. You can also download a script of each week’s presentation so that you can read the spoken words from the presentation later without reviewing the whole Jing presentation. For this week you can download AC113- AB113 Jing Chapter 6 Script.docx. AB113 Unit 78

9 Homework Assignment Reminder: Every Transaction MUST Be Balanced to Make the Accounting Equation Balanced!

Accounting for Receivables AB113 Unit 710

AB113 Unit 711 What Are Receivables?

AB113 Unit 712 What Are Receivables? The term receivables includes all money claims against other entities, including people, business firms, and other organizations.

AB113 Unit 713 What Are Accounts Receivable?

AB113 Unit 714 What Are Accounts Receivable? Accounts receivable are normally expected to be collected within a relatively short period, such as 30 or 60 days.

AB113 Unit 715 What Are Notes Receivable?

AB113 Unit 716 What Are Notes Receivable? Notes receivable are amounts that customers owe for which a formal, written instrument of credit has been issued.

AB113 Unit 717 What is the Formula for Calculating Interest on a Note?

AB113 Unit 718 What is the Formula for Calculating Interest on a Note? RTP!! :-D Rate x Time x Principal

AB113 Unit 719 RTP Example (p. 209) On March 16 customer gives us $2,000, 90-day note, promising to pay 10% interest R = 10% T = 90 days/360 days P = $2,000 Interest = RTP = 10% x 90/360 x $2,000 = $50

AB113 Unit 720 Calculating the Maturity Date You could get a calendar and count, but it’s quicker and more accurate to use a date calculator. You can use your own date calculator, if you have one, or go to Once you’re at the date calculator, just select the month and the day of the month that the note receivable started. Then enter the number of days and click “Calculate new date!” and you’ll get the date of maturity of your note. It’s that simple!

AB113 Unit 721 Calculating the Maturity Date 2 I’ve placed the url in an announcement in our classroom and under the blue Webliography button at the top of the classroom between Journal and Help. Plug in March 16 and 90 days and click on “Calculate new date!” and we get June 14--which is the date on the note on page 208. :-)

AB113 Unit 722 What Are the Two Methods of Accounting for Uncollectible Receivables?

AB113 Unit 723 What Are the Two Methods of Accounting for Uncollectible Receivables? The direct write off method records bad debt expense only when an account is judged to be worthless. The allowance method records bad debt expense by estimating uncollectible accounts at the end of the accounting period.

AB113 Unit 724 What Are the Ways of Estimating Uncollectible Receivables Under the Allowance Method?

25 What Are the Ways of Estimating Uncollectible Receivables Under the Allowance Method? 1. Percent of Net Sales Method 2. Aging of Receivables Method

Aging of Receivables Method of Estimating the Allowance for Uncollectible Accounts Example 26 Aging Class Receivables Estimated Uncollectible (# Days Past Due) Balance Percent Amount 0–30 days$200,0002% 31–60 days75, –90 days24, –120 days9, days +12,00080 Total $320,000

Calculating the Estimate of Uncollectible Accounts 27 $200,000 x 2% = $4,000 75,000 x 8% = 6,000 24,000 x 25% = 6,000 9,000 x 9% = 3,600 12,000 x 80% = 9,600 Total $29,200 =======

Aging of Receivables Method of Estimating the Allowance for Uncollectible Accounts 28 Aging Class Receivables Estimated Uncollectible (# Days Past Due) Balance Percent Amount 0–30 days$200,0002%$4,000 31–60 days75,00086,000 61–90 days24,000256,000 91–120 days9,000403, days +12, ,600 Total $320,000$29,200

AB113 Unit 729 What is the Impact of the Allowance Method on the Accounting Equation?

AB113 Unit 730 What is the Impact of the Allowance Method on the Accounting Equation? 1. Reduces an asset through increasing a contra-asset: Reduces the book value of Accounts Receivable by increasing Allowance for Doubtful Accounts (also called Allowance for Uncollectible Accounts) 2. Reduces owners’ equity by increasing a contra-account: Reduces retained earnings by increasing Bad Debts Expense (or Uncollectible Accounts Expense)

AB113 Unit 731 Accounting for Inventory

LCM (Lower of Cost or Market Rule) AB114 Unit 732

AB114 Unit 733 What is LCM?

AB114 Unit 734 What is LCM? GAAP Rule Requiring reduction in book value of inventory if historical cost exceeds market value

AB114 Unit 735 What is Market Value?

AB114 Unit 736 What is Market Value? Net Realizable Value (NRV): Revenue - selling expenses

AB114 Unit 737 In What Three Ways Can We Apply LCM?

AB114 Unit 738 In What Three Ways Can We Apply LCM? 1. To each item in the inventory; 2. To each major class or category of the inventory; or 3. To the total inventory as a whole.

LCM Example Lower-of-Cost-or-Market Method On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item as shown in Exhibit 9 on page 226. Inventory Unit Unit Commodity Quantity Cost Price Market Price R2D210$ 39$40 C3PO

AB114 Unit 740 So What Is Our First Step?

AB114 Unit 741 So What Is Our First Step? Calculate the cost of the inventory of commodity R2D2

AB114 Unit 742 What Is The Cost Of The Inventory Of Commodity R2D2?

AB114 Unit 743 What Is The Cost Of The Inventory Of Commodity R2D2? 10 units x $39 per unit = a cost of $390

AB114 Unit 744 What’s Our Second Step?

AB114 Unit 745 What’s Our Next Step? Calculate the market value of the inventory of commodity R2D2

AB114 Unit 746 What Is The Market Value Of The Inventory Of Commodity R2D2?

AB114 Unit 747 What Is The Market Value Of The Inventory Of Commodity R2D2? 10 units times $40 per unit = $400

AB114 Unit 748 What Is The LCM For Commodity R2D2?

AB114 Unit 749 What Is The LCM For Commodity R2D2? The lower of $390 or $400, which is $390, the cost

AB114 Unit 750 What’s Our Third Step?

AB114 Unit 751 What’s Our Third Step? Calculate the cost of the inventory of commodity C3PO

AB114 Unit 752 What Is The Cost Of The Inventory Of Commodity C3PO?

AB114 Unit 753 What Is The Cost Of The Inventory Of Commodity C3PO? 7 units x $110 per unit = $770

AB114 Unit 754 What’s Our Fourth Step?

AB114 Unit 755 What’s Our Fourth Step? Calculate the market value of the inventory of commodity C3PO

AB114 Unit 756 What Is The Market Value Of The Inventory Of Commodity C3PO?

AB114 Unit 757 What Is The Market Value Of The Inventory Of Commodity C3PO? 7 units x $98 = $686

AB114 Unit 758 So What Is The LCM For Commodity C3PO?

AB114 Unit 759 So What Is The LCM For Commodity C3PO? Lower of $770 or $686, or $686,which is the market.

AB114 Unit 760 So What Is The Overall LCM For The Inventory?

AB114 Unit 761 So What Is The Overall LCM For The Inventory? $390 + $686 = $1076

LCM Example Solution 62

AB113 Unit 763 Questions? :-)