Accounts Receivable | $300 | ||
---|---|---|---|
Sales Revenue | $300 |
Bad Debt Expense | $300 | ||
---|---|---|---|
Allowance for Doubtful Accounts | $300 |
Allowance for Doubtful Accounts | $300 | ||
---|---|---|---|
Accounts Receivable | $300 |
There are %%two methods%% to calculate the estimate of bad debt: Percentage of Credit Sales Method and Aging of Accounts Receivable
Percentage of Credit Sales Method
Example: A company has bad debt loss of 3/4. Their credit sales in March totaled $150,000.
Aging of Accounts Receivable
Example: $5,000 of a company’s Accounts Receivable are estimated to be uncollectible. The unadjusted credit balance for Allowance of Doubt Accounts is $500.
Account Receivables | $300 | ||
---|---|---|---|
Allowance | $300 | ||
Cash | $300 | ||
Accounts Receivable | $300 |
Three numbers are needed to calculate interest:
==Equation to calculate interest:==
Example: The interest period for a company is from January 1 - June 1 (6 months). The principal is $100,000 and the rate is 6%. What would equation look like and what is the interest?
Notes Receivable | $100,000 | ||
---|---|---|---|
Cash | $100,000 |
Interest Receivable | $1,000 | ||
---|---|---|---|
Interest Revenue | $1,000 |
Cash | $6,000 (total earned) | ||
---|---|---|---|
Interest Receivable | $1,000 (earned 2021) | ||
Interest Revenue | $5,000 (earned 2022) |
Cash | $100,000 | ||
---|---|---|---|
Note Receivable | $100,000 |
A receivables turnover analysis helps see the effectiveness of a company’s credit-granting and collection activity.
Selling goods or services makes the receivables balance increase.
Collecting the money from customers makes the receivables balance decrease.
Receivables turnover is the constant selling and collecting cycle.
The receivables turnover ratio indicates how many times the cycle is repeated during the accounting period.
Days to collect is the number of days to collect receivables.
==Equation to calculate the receivable turnover ratio:==
==Equation to calculate days to collect:==
Example: A company has Net Sales Revenue of $500,000 and Average Net Receivables of $50,000.