2.  3 Transactions › Initial purchase › Period End Adjustment › Sale of Investment Short-Term Investment Transactions Debit Credit 1) Initial Purchase Short Term Investment 1,000 Cash 1,000 2) Market Value Adjustment (gain)ST Investment Short Term Investment* 2001000 Unrealized Gain 200 1200 2) Market value Adjustment (loss) Unrealized Loss 200 Short-Term Investment 200 3) Sale of Short Term Investment Cash 1,400 Short-term Investment* 1,200 Gain on Sale of Investment 200

3.  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.  3 Transactions › Issuance of Note › Accrual of Interest › Collection of Note Note Receivable Transactions 1) Issuance of Note Notes Receivable 1,000 Cash 1,000 2) Accrual of Interest Interest Receivable* 100 Interest Revenue 100 3) Maturity of Note Cash 1,200(1000 principal + 200 Interest) Interest Receivable 100 Interest Revenue 100 Note Receivable 1,000

5.  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.  Represents Amount we Expect to collect 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

7.  Matching Principle Requires Estimate › Expense: Amount of Sales NOT collected  Two Estimation Techniques: › % of Sales › Aging of Accounts Receivable

8.  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.  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 * But not always be careful to check what the balance of the contra account is, debit or credit

10.  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.  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