CHAPTER 15 ACCOUNTS RECEIVABLE AND UNCOLLECTIBLE ACCOUNTS Chapter Opener: Thinking Critically Uncollectible accounts can be estimated in a number of ways. Students might consider historical data on uncollected accounts as one way of estimating the amount of uncollectible accounts a company can expect. Fast Facts Federal Express Corporation was founded 1971 in Little Rock, Ark. The most popular perk for employees is called jump seating. This allows employees to hitch an unlimited number of free rides anywhere FedEx flies. In 1973 on the first night of continuous operation, 389 Federal Express employees and 14 aircraft delivered 186 packages overnight to 25 U.S. cities. Currently, FedEx employs more than 275,000 employees and contractors worldwide and operates 684 aircraft and delivers an average daily volume of 8 million shipments for express, ground, freight and expedited delivery services. Managerial Implications: Thinking Critically The aging of accounts receivable would provide information about the length of time required to collect accounts. The balance sheet and income statement provide total sales, accounts receivable, and uncollectible accounts expense. Discussion Questions 1. The allowance method more closely matches revenues (sales) with expenses (uncollectible accounts) in the year the revenue is earned. 2. (a) percent net credit sales, (b) adjust allowance to percentage of total accounts receivable, and (c) age accounts based on different percentages for different ages of accounts. 3. On sales. Sales represents the revenues for the current period. The accounts receivable account reflects sales made in the current period and past periods. 4. Compute the loss from bad debts by multiplying the net credit sales by the predetermined loss percentage. Charge this amount to the expense account and credit Allowance for Doubtful Accounts for the same amount. If the balance in the allowance account is unusually low, it may be desirable to consider making a special provision for additional uncollectible accounts. 5. Determining balances for each customer and analyzing the balance between debt not yet due and debt past due for each period of time. 6. Allowance for Doubtful Accounts. 7. Debit Allowance for Doubtful Accounts and credit Accounts Receivable and the customer s account in the subsidiary ledger. 8. The matching principle and the conservatism constraint. 568 Chapter 15 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
Discussion Questions (continued) 9. Debit Accounts Receivable and the customer s subsidiary account and credit Allowance for Doubtful Accounts. Then debit Cash and credit Accounts Receivable and the customer s subsidiary account. 10. Credit the Allowance account for only enough to bring the balance to the estimated doubtful accounts based on the aging analysis. 11. It is a contra account and is subtracted from Accounts Receivable. 12. Uncollectible Accounts Expenses is shown as either a selling expense (if the sales department is responsible for granting credit), or as a general expense (if the sales department does not grant credit). 13. An individual account is charged to expense and credited to Accounts Receivable when it is determined that account is uncollectible. 14. Accounts Receivable is overstated and expense is understated for the current year and perhaps for the prior year(s). The matching principle is violated. 15. Businesses with few accounts receivable (so that the amount involved is immaterial) or with very few uncollectible accounts. The materiality constraint allows violations of GAAP when results obtained ar not materially different. 16. Uncollectible Accounts Expense is charged and Accounts Receivable credited at the time an individual debtor s account is determined to be uncollectible. 17. Accounts Receivable is debited and an income account, Uncollectible Accounts Recovered is credited. 18. Authorizing all credit sales, sending invoices and monthly statements, aging accounts receivable, separating duties of those involved in granting credit, handling cash, and keeping records related to accounts receivable. 19. Authorizing credit sales, recording receivables transactions, preparing bills and statements for customers, mailing bills or statements, processing payments from customers, giving approvals for write-offs. Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 569
EXERCISE 15.1 Total credit sales Less sales returns and allowances credit sales Net credit sales Estimated loss rate Estimated loss $16,403,600 61,600 $16,342,000 0.003 $49,026 GENERAL JOURNAL PAGE 2 2 Dec. 31 Uncollectible Accounts Expense 49 02600 2 3 Allowance for Doubtful Accounts 49 02600 3 4 To record estimated uncollectible accounts 4 5 for fiscal year, based on 0.3% of net credit 5 6 sales of $16,342,000 6 EXERCISE 15.2 Accounts Receivable Estimated uncollectible rate Estimated uncollectible accounts Less credit balance of Allowance for Doubtful Accounts Adjustment amount $1,863,000 0.033 61,479 (3,621) $57,858 570 Chapter 15 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
EXERCISE 15.2 (continued) GENERAL JOURNAL PAGE 2 Dec. 31 Uncollectible Accounts Expense 57 85800 2 3 Allowance for Doubtful Accounts 57 85800 3 4 To record adjustment of allowance account based 4 5 on 3.3% of Accounts Receivable of $1,863,000 5 6 6 EXERCISE 15.3 Accounts Receivable $920,000 Estimated uncollectible account rate 0.035 Estimated uncollectible accounts 32,200 Add debit balance in Allowance for Doubtful Accounts 2,000 Adjustment amount 34,200 GENERAL JOURNAL PAGE 2 Dec. 31 Uncollectible Accounts Expense 34 2 0 0 00 2 3 Allowance for Doubtful Accounts 34 20000 3 4 To record adjustment of allowance account 4 5 to desired balance of $32,200 5 6 6 EXERCISE 15.4 GENERAL JOURNAL PAGE 2 Apr. 30 Allowance for Doubtful Accounts 2 7 0 0 00 2 3 Accounts Receivable/Michele Waters 2 70000 3 4 To write off account determined to be 4 5 uncollectible 5 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 571
EXERCISE 15.5 GENERAL JOURNAL PAGE 2 Dec. 8 Accounts Receivable/Michele Waters 270000 2 3 Allowance for Doubtful Accounts 270000 3 4 To reverse entry dated April 30, 2013 writing 4 5 off this account, which was collected in full today 5 6 6 7 8 Cash 270000 7 8 Accounts Receivable/Michele Waters 270000 8 9 To record receipt of cash on account previously 9 10 written off on April 30, 2013 10 EXERCISE 15.6 GENERAL JOURNAL PAGE 22 1 2014 1 2 Feb. 28 Accounts Receivable/Michele Waters 270000 2 3 Allowance for Doubtful Accounts 270000 3 4 To reverse entry dated April 30, 2013 writing 4 5 off this account, which was collected in full today 5 6 6 7 28 Cash 270000 7 8 Accounts Receivable/Michele Waters 270000 8 9 To record receipt of cash on account written off 9 10 on April 30, 2013 10 EXERCISE 15.7 GENERAL JOURNAL PAGE 18 2 Sept. 10 Uncollectible Accounts Expense 84000 2 3 Accounts Receivable/Chris Freyer 84000 3 4 To write off uncollectible account 4 5 5 572 Chapter 15 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
EXERCISE 15.8 GENERAL JOURNAL PAGE 2 Dec. 8 Accounts Receivable/Chris Freyer 4 2 0 00 2 3 Uncollectible Accounts Expense 4 2 0 00 3 4 To partially reverse September 10, 2013, 4 5 entry writing off this account 5 6 6 EXERCISE 15.9 GENERAL JOURNAL PAGE 1 2014 1 2 Jan. 28 Accounts Receivable/Chris Freyer 4 2 0 00 2 3 Uncollectible Accounts Recovered 4 2 0 00 3 4 To partially reinstate amount of account 4 5 collected today, charged off Sept. 10, 2013 5 6 6 PROBLEM 15.1A 1. Wholesale ($2,040,000.005) $10,200.00 Retail ($548,600.012) 6,583.20 Total $16,783.20 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 573
PROBLEM 15.1A (continued) GENERAL JOURNAL PAGE 1 2013 (2) 1 2 Dec. 31 Uncollectible Accounts Expense 16 78320 2 3 Allowance for Doubtful Accounts 16 78320 3 4 To record estimated losses from uncollectible 4 5 accounts for the year, based on 0.5% of net 5 6 whsle. credit sales and 1.2% of retail net 6 7 credit sales 7 8 2014 (4) 8 9 Jan. 20 Allowance for Doubtful Accounts 83000 9 10 Accounts Receivable/Delphi Clothiers 83000 10 11 To write off account determined to be 11 12 uncollectible 12 13 (5) 13 14 Nov. 26 Accounts Receivable/Delphi Clothiers 83000 14 15 Allowance for Doubtful Accounts 83000 15 16 To reverse entry dated January 20, writing 16 17 off this account, which was collected in full 17 18 today 18 19 19 Ultra Leather Products Balance Sheet December 31, 2013 Accounts Receivable 392 00000 Less Allowance for Doubtful Accounts ($16,783.20 326.80) 16 45640 37554360 Analyze: Net Accounts Receivable for the year ended December 31, 2013 should be $375,543.60. 574 Chapter 15 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 15.2A ESTIMATE OF UNCOLLECTIBLE ACCOUNTS 1. Over 60 days past due ($1,532.25) $383.00 31 60 days past due ($1,968.09) 177.12 1 30 days past due ($5,240.03) 157.20 Current ($37,848.01) 378.48 Total estimated uncollectible accounts $1,095.80 ADJUSTMENT FOR ESTIMATED UNCOLLECTIBLE ACCOUNTS 2. Estimated uncollectible accounts $ 1,095.80 Less credit balance in Allowance for Doubtful Accounts 208.20 Amount of adjustment for estimated uncollectible accounts $887.60 GENERAL JOURNAL PAGE 1 2013 (3) 1 2 Dec. 31 Uncollectible Accounts Expense 8 8 7 60 2 3 Allowance for Doubtful Accounts 88760 3 4 To record adjustment of allowance account 4 5 to needed balance of $1,095.80 based on 5 6 aging of accounts receivable 6 7 2014 (4) 7 8 May 10 Allowance for Doubtful Accounts 4 1 6 00 8 9 Accounts Receivable/John Ash 41600 9 10 To write off account determined to be 10 11 uncollectible 11 12 (5) 12 13 June 12 Accounts Receivable/Zeke Martin 20000 13 14 Allowance for Doubtful Accounts 20000 14 15 To reverse entry dated November 8, 2013, 15 16 writing off this account, which was collected 16 17 in full today 17 18 (6) 18 19 Dec. 31 Uncollectible Accounts Expense 9 5 6 50 19 20 Allowance for Doubtful Accounts 95650 20 21 To record adjustment of allowance account to 21 22 needed balance of $1,164.70 based on 2.5% 22 23 of accounts receivable 23 24 [(0.025 $46,588) $208.20 = $956.50] 24 Analyze: Net income would be reduced by $68.90 ($956.50 $887.60). Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 575
PROBLEM 15.3A 1. a. Credit sales $8,500,000 Less sales returns and allowances on credit sales 200,000 Net credit sales $8,300,000 Amount to be charged to the Uncollectible Accounts Expense (0.0025 $8,300,000) $20,750 b. Accounts Receivable $850,000 Accounts Receivable estimated uncollectible (0.033 $850,000) 28,050 Less credit balance in Allowance for Doubtful Accounts (3,000) Amount to be charged to the Uncollectible Accounts Expense $25,050 2. a. Computations and answers are the same as for 1a. b. Accounts Receivable estimated uncollectible $28,050 Add debit balance in Allowance for Doubtful Accounts 2,500 Amount to be charged to the Uncollectible Accounts Expense $30,550 Analyze: Using the sales basis would give highest income this year. 576 Chapter 15 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 15.4A GENERAL JOURNAL PAGE 18 2 Feb. 7 Uncollectible Accounts Expense 60000 2 3 Accounts Receivable/Anne Baker 60000 3 4 To write off account determined to be uncollectible 4 5 5 6 May 16 Uncollectible Accounts Expense 100000 6 7 Accounts Receivable/Martha Falls 100000 7 8 To write off account determined to be uncollectible 8 9 9 10 July 2 Accounts Receivable/Anne Baker 30000 10 11 Uncollectible Accounts Expense 30000 11 12 To reverse part of entry dated February 7 writing 12 13 off this account, which was collected today 13 14 14 15 July 29 Accounts Receivable/Anne Baker 30000 15 16 Uncollectible Accounts Expense 30000 16 17 To reverse balance of entry dated February 7 17 18 writing off this account, which was collected 18 19 in full today 19 20 20 21 Aug. 18 Uncollectible Accounts Expense 32400 21 22 Accounts Receivable/David Nye 32400 22 23 To write off account determined to be uncollectible 23 24 24 25 2014 25 26 Sept. 28 Accounts Receivable/Martha Falls 50000 26 27 Uncollectible Accounts Recovered 50000 27 28 To restore part of account charged off May 16, 2013, 28 29 which was collected from estate of Martha Falls 29 30 today. 30 31 31 32 32 33 33 34 34 35 35 Analyze: The net uncollectible accounts expense recorded for the year was $1,324. Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 577
PROBLEM 15.1B 1. Businesses ($1,800,000 0.4%) $7,200.00 Individuals ($1,200,000 0.9%) 10,800.00 Total losses in uncollectible accounts $18,000.00 GENERAL JOURNAL PAGE 2 1 2013 (2) 1 2 Dec. 31 Uncollectible Accounts Expense 18 00000 2 3 Allowance for Doubtful Accounts 18 00000 3 4 To record estimated losses from uncollectible 4 5 accounts for the year, based on 0.4% of 5 6 business sales and 0.9% of individual sales 6 7 2014 (4) 7 8 Jan. 28 Allowance for Doubtful Accounts 7 8 8 00 8 9 Accounts Receivable/Fain Enterprises 7 8 8 00 9 10 To write off account determined to be 10 11 uncollectible 11 12 (5) 12 13 June 15 Accounts Receivable/Fain Enterprises 40000 13 14 Allowance for Doubtful Accounts 4 0 0 00 14 15 To reverse portion of entry dated January 28 15 16 writing off this account, which was collected 16 17 today 17 Ideal Plumbing Company Balance Sheet December 31, 2013 Accounts Receivable 281 50000 Less Allowance for Doubtful Accounts 18 60000 26290000 Analyze: The amount charged to Uncollectible Accounts Expense would be $19,105. 578 Chapter 15 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 15.2B ESTIMATE OF UNCOLLECTIBLE ACCOUNTS 1. Over 60 days past due ($1,046.40) $418.40 31 60 days past due ($2,398.14) 335.72 1 30 days past due ($4,389.04) 175.56 Current ($8,815.01) 88.15 Total estimated uncollectible accounts $1,017.83 ADJUSTMENT FOR ESTIMATED UNCOLLECTIBLE ACCOUNTS 2. Estimated uncollectible accounts $ 1,017.83 Plus debit balance in Allowance for Doubtful Accounts 310.00 Amount of adjustment for estimated uncollectible accounts $1,327.83 GENERAL JOURNAL PAGE 7 1 2013 (3) 1 2 July 31 Uncollectible Accounts Expense 132783 2 3 Allowance for Doubtful Accounts 132783 3 4 To record adjustment of allowance account to 4 5 needed balance of $1,017.83 based on aging 5 6 of accounts receivable 6 7 (4) 7 8 Aug. 28 Allowance for Doubtful Accounts 18200 8 9 Accounts Receivable/Jorge Urbina 18200 9 10 To write off account determined to be 10 uncollectible 11 (5) 11 12 Sept. 21 Accounts Receivable/Barry King 25000 12 13 Allowance for Doubtful Accounts 25000 13 14 To reverse entry dated December 19, 2012, 14 15 writing off this account 15 16 (6) 16 17 July 31 Uncollectible Accounts Expense 120684 17 18 Allowance for Doubtful Accounts 120684 18 19 To record adjustment of allowance account to 19 20 needed balance of $1,331.84 based on 8% of 20 21 accounts receivable 21 22 (8% $16,648) $125.00 = $1,206.84 22 Analyze: The average uncollectible rate for all accounts receivable is 6.11% ($1,017.83 $16,648). Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 579
PROBLEM 15.3B 1. a. Credit sales $39,100,000 Less sales returns and allowances on credit sales 230,000 Net credit sales $38,870,000 Amount to be charged to the Uncollectible Accounts Expense (0.0034 $38,870,000) $132,158 b. Accounts Receivable $3,910,000 Accounts Receivable estimated uncollectible (0.028 $3,910,000) 109,480 Less credit balance in Allowance for Doubtful Accounts (6,500) Amount to be charged to the Uncollectible Accounts Expense $102,980 2. a. Computations and answers are the same as for 1a. b. Accounts Receivable estimated uncollectible $109,480 Add debit balance in Allowance for Doubtful Accounts 6,500 Amount to be charged to the Uncollectible Accounts Expense $115,980 Analyze: The method resulting in the highest uncollectible expense is 1a. 580 Chapter 15 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
PROBLEM 15.4B GENERAL JOURNAL PAGE 18 2 Mar. 15 Uncollectible Accounts Expense 500000 2 3 Accounts Receivable/Tony Smith 500000 3 4 To write off account of customer who died 4 5 5 6 Apr. 22 Uncollectible Accounts Expense 300000 6 7 Accounts Receivable/Tom Greenberg 300000 7 8 To write off account determined to be uncollectible 8 9 9 10 June 16 Accounts Receivable/Tony Smith 100000 10 11 Uncollectible Accounts Expense 1 0 0 0 00 11 12 To reverse part of entry dated March 15 12 13 writing off this account, which was collected 13 14 in part from the estate of Tony Smith 14 15 15 16 July 13 Accounts Receivable/Tom Greenberg 220000 16 17 Uncollectible Accounts Expense 2 2 0 0 00 17 18 To reverse part of entry dated April 22 18 19 writing off Greenberg account, which was 19 20 collected in part from the bankruptcy court 20 21 21 22 Oct. 8 Uncollectible Accounts Expense 210000 22 23 Accounts Receivable/Lisa Holmes 21000023 24 To write off account determined to be uncollectible 24 25 25 26 2014 26 27 Feb. 12 Accounts Receivable/Tom Greenberg 8 0 0 00 27 28 Uncollectible Accounts Recovered 8000028 29 To reverse balance of entry dated April 22 29 30 writing off this account, balance of which was 30 31 collected from Tom Greenberg 31 32 32 33 33 34 34 35 35 Analyze: The balance for Uncollectible Accounts Expense should be $6,900. Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 581
CRITICAL THINKING PROBLEM 15.1 GENERAL JOURNAL PAGE 18 2 Dec. 31 Allowance for Doubtful Accounts 25 51000 2 3 Accounts Receivable/Bob Anderson 10 80000 3 4 Accounts Receivable/Suzanne Bennett 2 18000 4 5 Accounts Receivable/James O'Brian 4 20000 5 6 Accounts Receivable/Omar Tirado 523000 6 7 Accounts Receivable/Casey Wilk 310000 7 8 To charge off uncollectible accounts 8 9 9 10 31 Uncollectible Accounts Expense 28 48000 10 11 Allowance for Doubtful Accounts 28 48000 11 12 To record estimated bad-debt losses 12 13 based on 0.32% of net credit sales 13 14 14 15 31 Uncollectible Accounts Expense 23 55500 15 16 Allowance for Doubtful Accounts 23 55500 16 17 To record adjustment of allowance account to 17 18 $26,245 required balance based on aging of 18 19 accounts receivable 19 20 ($26,245 $2,690 = $23,555) 20 21 21 ESTIMATE OF UNCOLLECTIBLE ACCOUNTS Over 60 days past due 0.40 $23,840 = $9,536 31 60 days past due 0.1 41,090 = 4,109 1 30 days past due 0.05 90,000 = 4,500 Current 0.01 810,000 = 8,100 Total estimated uncollectible accounts $26,245 582 Chapter 15 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
CRITICAL THINKING PROBLEM 15.1 (continued) Allowance for Doubtful Accounts Accounts Receivable 12/31 Chg. Off 25,510 12/31 Beg. Bal. 28,200 12/31 Beg. Bal. 990,440 12/31 Chg. Off 25,510 12/31 Adjustment 23,555 12/31 Final Bal. 964,930 12/31 Final Bal. 26,245 Balance in Allowance account before adjustment ($28,200 $25,510) Needed balance Adjustment $2,690 (credit) 26,245 (credit) $23,555 (credit) Analyze: The consistency principle has been violated. A lack of consistency in the method used to determine uncollectible accounts results in financial statements that are not compatible. It is possible to change methods, but the details of the change must be disclosed in the notes accompanying the financial statements. Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 583
CRITICAL THINKING PROBLEM 15.2 GENERAL JOURNAL PAGE 29 1 2013 (1) 1 2 Dec. 31 Accounts Receivable/Various Accounts 6,480 0 0 0 00 2 3 Sales 6,480 0 0 0 00 3 4 To record sales for 2013 4 5 5 6 31 Allowance for Doubtful Accounts 22 20000 6 7 Accounts Receivable/Craine Toy Outlets 22 20000 7 8 To write off account determined to be 8 9 uncollectible 9 10 10 11 31 Allowance for Doubtful Accounts 25 00000 11 12 Cash 25 0 0 0 00 12 13 Accounts Receivable/Youth Fun Shops 50 0 0 0 00 13 14 To record partial payment and write off 14 15 balance of account determined to 15 16 be uncollectible 16 17 17 18 31 Allowance for Doubtful Accounts 680000 18 19 Accounts Receivable/Toys on the Square 6 8 0 0 00 19 20 To write off account determined to be 20 21 uncollectible 21 22 22 23 31 Allowance for Doubtful Accounts 22 60000 23 24 Accounts Receivable/Various Accounts 22 6000024 25 To write off accounts determined to be 25 26 uncollectible in old territory 26 27 27 ESTIMATE OF UNCOLLECTIBLE ACCOUNTS Old territory ($6,280,000 0.003) $18,840.00 New territory ($200,000 0.03) 6000.00 Total estimated loss $24,840.00 584 Chapter 15 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
CRITICAL THINKING PROBLEM 15.2 (continued) GENERAL JOURNAL PAGE 29 2 Dec. 31 Uncollectible Accounts Expense 24 84000 2 3 Allowance for Doubtful Accounts 24 84000 3 4 To record estimated bad debt losses 4 5 5 Allowance for Doubtful Accounts Amounts written off Beg. Bal. 6,200 22,200 2013 Adjustment 24,840 25,000 6,800 22,600 Bal 45,560 ANALYSIS BY TERRITORY Old territory: Provision for losses in 2013 ($6,280,000 0.003) $18,840.00 Actual losses during 2013 22,600.00 Excess losses in 2013 over provision in 2013 ($3,760.00) New territory: Provision for losses in 2013 ($200,000 0.03) $6,000.00 Actual losses during 2013 54,000.00 Excess losses in 2013 over provision in 2013 ($48,000.00) The provision for uncollectible accounts is grossly inadequate and must be increased for 2013. There is an ending debit balance in the allowance account which is not acceptable. Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 585
SOLUTIONS TO BUSINESS CONNECTIONS Managerial Focus: 1. Permits losses from uncollectible accounts to be charged against period revenue. 2. Not desirable. The granting of credit is usually handled by administrative personnel, therefore not motivated by sales. 3. For correct historical documentation of customers accounts. 4. Prevents stealing, provides strong internal controls. Ethical Dilemma: It could be ethical if the current sales volume is to customers of unknown credit history. However, if the increase is from all known customers then it is unethical to increase the percentage solely to reduce the net income and therefore the tax liability. An audit of their tax returns will disclose the higher percentage and Jitters will need to justify the increase. Financial Statement Analysis: 1. $369.8 ($365.3 + $4.5) 2. 4.0% ($15.4 decrease divided by $380.7) 3. 37.6% ($365.3 $970.5) Teamwork: The sale of an invoice: Debit A/R, Credit Sales/Write off the account: Debit Allowance for Uncollectible, Credit A/R/ Reinstate A/R: Debit A/R Credit Allowance/ Pay the bill: Debit Cash, Credit A/R. Internet Connection: Commercial credit is the lifeline of your business. It is the critical factor in obtaining funding for expansio capital expenditures, staffing, research, and development. Commercial credit also allows you to use the cash that you have on hand to cover other expenses it provides you with the liquidity that allows you to respond quickly to time sensitive decisions without halting or compromising operations. 586 Chapter 15 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved.
SOLUTIONS TO PRACTICE TEST Part A True-False 1. TRUE 11. FALSE 2. FALSE 12. TRUE 3. FALSE 13. FALSE 4. FALSE 14. TRUE 5. FALSE 15. TRUE 6. FALSE 16. TRUE 7. TRUE 17. FALSE 8. FALSE 18. TRUE 9. FALSE 19. FALSE 10. TRUE Part B Exercise I 1. $8,703 2. $8,703 3. $5,900 4. $6,100 Part C Exercise II NETWORK DISTRIBUTORS Schedule of Accounts Receivable by Age December 31, 2010 PAST DUE DAYS ACCOUNT BALANCE CURRENT 1 30 31 60 OVER 60 Ameche, John $6,000 $2,500 $3,500 Duong, Kim 7,000 2,500 $4,500 Graham, Ken 7,000 7,000 McCartney, Harold 6,800 $6800 Torelli, Andrew 9,000 9,000 Totals $35,800 $18,500 $6,800 $6,000 $4,500 Copyright 2012 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 587