1. Unit 14
November 5, 2018

2. Making Sales on Credit Sales Rep Credit Manager Credit Check
Credit Report
Credit Reporting Agency
Credit Rating or Credit Score
Credit Limit

3. How do you know who owes what?
Making Sales on Credit
How do you know who owes what?
Accounts Receivable Sub-Ledger

4. A/R Subledger

5. A/R Subledger
Accounts Receivable Sub-Ledger: Customer Branson Co. B-002

6. A/R Subledger
Accounts Receivable Sub-Ledger: Customer Zeus Company Z- 002
Accounts Receivable Sub-Ledger: Customer Alpha-Beta Supply A-121
Accounts Receivable Sub-Ledger: Customer Greene Inc. G-016
Accounts Receivable Sub-Ledger: Customer Branson Co. B-002
16632

7. Making Sales on Credit Accounts Receivable T-Account Accounts
Accounts Receivable Sub-Ledger
$136,769
$136,769

8. A/R Subledger
Accounts Receivable Sub-Ledger: Customer Branson Co. B-002
16632
$20,650

9. Accounts
Receivable
$136,769

10. Making Sales on Credit Sales Rep Credit Manager Collections Manager
Credit Check
Credit Report
Credit Reporting Agency
Credit Rating
Credit Limit
Collections Manager
Dunning Notice

11. UNCOLLECTIBLE ACCOUNT
BAD DEBT

12. DIRECT WRITE-OFF METHOD
ACCOUNT
CANCELED
16632
Aug Bad Debt Write-Off and Account Closure

13. ACCRUAL ACCOUNTING MATCHING PRINCIPLE
Under GAAP,
companies can only use the
Direct Write-Off Method
if their bad debts are immaterial, or very rare.
ACCRUAL ACCOUNTING
MATCHING PRINCIPLE
“Expenses should be matched to the period in which their related revenue is earned.”

14. If the revenue is earned in January, the expense should be recorded in January.
“Expenses should be matched to the period in which their related revenue is earned.”

15. CONTRA-ASSET ACCOUNT

22. 2% OF REVENUE THREE WAYS OF CALCULATING THE AMOUNT OF THE ACCRUAL
1. PERCENTAGE OF SALES
$310,000
$6,200
$6,200
2% OF REVENUE
An adjusting entry is made at the end of the period, for a set percentage of revenue.

23. An adjusting entry is made at the end of the period,
THREE WAYS OF CALCULATING THE AMOUNT OF THE ACCRUAL
1. PERCENTAGE OF SALES
2. PERCENTAGE OF ACCOUNTS RECEIVABLE BALANCE
$310,000
$510,000
$9,000
2% OF A/R
$9,000
$10,200
An adjusting entry is made at the end of the period,
such that the Allowance account balance becomes a set percentage of the A/R balance.

24. 90 DAYS THREE WAYS OF CALCULATING THE AMOUNT OF THE ACCRUAL
1. PERCENTAGE OF SALES
2. PERCENTAGE OF ACCOUNTS RECEIVABLE BALANCE
3. AGED ACCOUNTS RECEIVABLE
90 DAYS
An adjusting entry is made at the end of the period, such that the Allowance account always contains the actual amount of Accounts Receivable which are more than given amount past due.

26. THREE WAYS OF CALCULATING THE AMOUNT OF THE ACCRUAL
1. PERCENTAGE OF SALES
2. PERCENTAGE OF ACCOUNTS RECEIVABLE BALANCE
3. AGED ACCOUNTS RECEIVABLE
$7,713
$7,713
$8,913
An adjusting entry is made at the end of the period, such that the Allowance account always contains the actual amount of Accounts Receivable which are more than given amount past due.

27. 2. PERCENTAGE OF ACCOUNTS RECEIVABLE BALANCE
THREE WAYS OF CALCULATING THE AMOUNT OF THE ACCRUAL
1. PERCENTAGE OF SALES
An adjusting entry is made at the end of the period,
for a set percentage of revenue.
2. PERCENTAGE OF ACCOUNTS RECEIVABLE BALANCE
An adjusting entry is made at the end of the period,
such that the Allowance account balance becomes a set percentage of the A/R balance.
3. AGED ACCOUNTS RECEIVABLE
An adjusting entry is made at the end of the period, such that the Allowance account always contains the total of Accounts Receivable which are more than given amount past due.

28. NOTE: We have been ACCRUING for doubtful accounts!
We have NOT YET written off ANY account receivable!

29. NOTE: We have been ACCRUING for doubtful accounts!
We have NOT YET written off ANY account receivable!
In a future period, when the Credit Manager decides an account really is uncollectible, we write off the receivable …
to the ALLOWANCE account.
$4,600
$4,600

30. In a future period, when the Credit Manager decides an account really is uncollectible, we write off the receivable …
to the ALLOWANCE account.
$4,600
$4,600

31. Questions about Bad Debts?

32. NOTES RECEIVABLE More Formal In Writing Carries Interest
Specific Payback (Maturity) Date
Often has collateral or security
Sometimes it is just a new loan from us to someone.
Sometimes it is converted from an overdue receivable

33. NOTES RECEIVABLE
Event: Issue of a Note, providing cash to a borrower

34. NOTES RECEIVABLE
Event: Converting A/R into a Note
6000

35. NOTES RECEIVABLE
Event: Recognizing Interest Income from a Note
$60

36. NOTES RECEIVABLE
Event: Borrower paid off the Note
$6060
$60
$6060

37. Questions about Notes Receivable?

38. CREDIT CARD SALES
CASH SALES
Cash (or A/R) $1600
Revenue $1600

39. CREDIT CARD SALES Cash from Credit Card issuer $1568
Credit Card Transaction Fee $32
SELLING EXPENSE
Revenue $1600

40. Questions about Credit Card Sales?

41. Homework Assignment 14