accounting 3

receivables

receivables are amounts due from individuals and companies

accounts receivables

account receivables are amounts costumers owe on account that result from the sale of goods and services

notes receivable

notes receivables are written promises for amounts to be received. Normally requires a collection of interest

What can reduce receivables?

• sales discounts

• sales returns and allowances

• bad debt expense

bad debt expense

bad debt expense refers to the portion of receivables that the company expects will not be paid

Direct write-off method

• Bad debt expenses are recorded as actual losses

• not acceptable for financial reporting

Allowance method

• bad debt expense is reported in the period the sales occur

• receivables stated at estimated collectible amount

  • credit balance = -

  • debt balance = +

Amortization Expense

Amortization expense is the periodic allocation of the cost of an intangible asset over its useful life. Similar to depreciation, which applies to tangible assets, amortization is used for assets that do not have physical substance

Return on Asset formula

ROA= net income/average total assets

asset turnover formula

TA = net sales/average total assets