1. Accounts Receivable and Impairments

2. Review of Accounting for Accounts Receivable Typically recognize sales revenue at sale Accounts Receivable840 Sales Revenue840 What about estimated uncollectibles? –Same issue with other assets that may be worth less than carrying value (inventory, PP&E, etc.)

3. Allowance method Generally required for financial reporting Record estimated bad debt expense and accounts receivable contra account at sale Bad Debt Exp. (or Sales contra) 8.4 Allow. For DA (AR contra)8.4 Net income effect at time of sale

4. No net income effect at time of write-off Allowance for Doubtful Accounts 1.2 Accounts Receivable1.2 Reverse out entry if later collected Accounts Receivable 1.2 Allowance for DA1.2

5. Match revenue & expenses in period of sale Records net accounts receivable at expected cash collection Discretion in estimating bad debt expense

6. Adjust estimate at period-end if necessary How to estimate bad debts? –Percentage of sales –Aging of accounts receivables –Often A. and B. are used in combination Allowance for DA0.8 Bad Debt Expense0.8 To reduce allowance based on period-end A/R

7. Other applications –Sales return and cash discounts –Inventory obsolescence

8. From Coke’s 10-K

9. ACCOUNTS RECEIVABLE AND BAD DEBTS T-ACCOUNTS (Gross) Accounts Receivable Beg. Bal. Credit Sales Collections Write-offs Ending Bal. Allowance for Doubtful Accounts Beg. Bal. Write-offs Bad Debt Exp. Ending Bal.

10. ACCOUNTS RECEIVABLE AND BAD DEBTS T-ACCOUNTS (Gross) Accounts Receivable Beg. Bal. $1,941(B/S) Credit Sales Collections $19,564 (I/S) $19,322 (Plug) Write-offs $31(10-K) Ending Bal. $2,152 (B/S) Allowance for Doubtful Accounts Beg. Bal. $59 (B/S) Write-offs Bad Debt Exp. $31 (10-K) $27 (10-K) Ending Bal. $55 (10-K)

11. Other Allowances and Reserves Impairment allowances –If PP&E is not expected to return its net BV Impairment Loss100 PP&E (or contra)100 –Depreciate based on remaining life and new book value –Take the B/S and I/S hit when the value drops

12. Player trading profits were 12.9 million pounds due largely to the transfer of England captain David Beckham to Real Madrid, but were down from last year's profit of 17.4 million pounds as the club took a write down on the value of Argentine midfielder Juan Sebastian Veron before his subsequent sale to Chelsea. "These are a cracking set of results, but there are a lot of one-offs this year and they may struggle to match them next year on a like-for-like basis," said analyst Andrew Lee at Dresdner Kleinwort Wasserstein LONDON, Sept 30 (Reuters) - Manchester United sought to play down persistent takeover speculation surrounding the premier league champions on Tuesday as success on and off the pitch boosted annual profits by 22 percent.

16. Warrantee Allowance Set up allowance for expected liability when you sell the product Warrantee Expense40 Warrantee Liability40 When you pay to fix it or replace it Warrantee Liability40 Cash (or Inventory)40

17. Restructuring Reserves Set up a reserve for unavoidable costs and impairments when you begin a restructuring Loss on Restructuring100 Restructuring Liability40 PP&E (or contra)60

18. Reverse out the liability when you pay cash Restructuring Liability40 Cash40 Depreciate remaining PP&E balance over remaining life