Kelsey Thacker
Case Study 2
The allowances given were underestimated and there wasn’t enough money budgeted to cover the amounts of the actual bad debts, 6% was too small.
The money presented was:
Year Total Sales % on Credit Credit Sales Allowance amount (6%) Write-off amount
2010 $1,000,000 60% $600,000 $36,000 $52,000
2011 $1,800,000 70% $1,260,000 $75,000 $96,000
2012 $2,000,000 75% $1,500,000 $90,000 $60,000 However if a 12% portion of accounts receivable is used then the numbers would look like this:
In 2010: ($365000x12%)+6000 debit balance=49800
$49,800 is the bad debt expense whilst $43,800 would be the allowance amount in the credit balance.
In 2011: 43800-96000 write off = 52200+(12% on 425000) = 103200
$103,200 is the bad debt expense whilst $51,000 would be the allowance amount in the credit balance.
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While using the allowance-based principles the better method is the Percent of receivables method because it looks at existing numbers such as existing credit or debit balances when creating the allowance amount, the percentage of sales method does not do this. The percentage of sales method runs into trouble because debts pile is and write-offs are overstated.
Using the aging of receivables
$15000/4=$3750 for each period. --- $3750 is compensation cost of OMS recognize in 2012 and in 2013.
Accounts receivable ending balance= Beginning balance +sales on Account - cash receipts -sales returns and allowances- charge of uncollectible account
...d inspection was $2,050,000 and $423,000 for preliminary expenses. Also, there was a $4,068,000 cost for financing and in the end a surplus of $1,334,000.
a. The cost of debt is the money company has to pay for using the funds. In our case, annual cost of debt is kd: kd/2 = r = 5.0%. kd/2 = (47.5 + [1000-891] / 30) / ((2*891 + 1000) / 3) = 5.5% We have to multiply t...
This accounting principle requires companies to use the accrual basis of accounting. The accounting method under which revenues are recognized on the income statement when they are earned (rather than when the cash is received). The balance sheet is also affected at the time of the revenues by either an increase in Cash (if the service or sale was for cash), an increase in Accounts Receivable (if the service was performed on credit), or a decrease in Unearned Revenues (if the service was performed after the customer had paid in advance for the service).
If the interest income from these rates makes up approximately 35% of each company’s net
As we learned in class by keeping accounting on the simple way of a General ledger the entries goes as follows, every entry is A Debit for 1 account following with a credit on the other for Example when you have a Rent Expenses of $ 15,000 meaning you taking out money from cash account to p...
Accounts Receivable has good separation of duties and strong internal controls such as control numbers and reconciliations to sales and bank statements. One weakness in the Accounts receivable system is the accounting supervisor approves summary entries and reconciles the general ledger account, which could indicate a weakness with segregation of duties. We recommend that the controller approves of summary entries to segregate these duties.
Credit Risk: Financial instruments that possibly subject the Company to concentrations of credit risk consist of cash equivalents and receivables. Due to its large and varied customer base and its geographic diversity, Saputo has low exposure to credit risk concentration with respect to customer’s receivables. There are no receivables from any individual customer that exceeded 10% of the total balance of receivables as at March 31, 2015 and March 31, 2014. However one customer represented more than 10% of total consolidated sales for the year ended March 31, 2015, with 10.2% (one customer with 11.4% in 2014). Allowance for doubtful accounts and past due receivables are reviewed by management at each balance sheet date. The company updates its estimate of the allowance for doubtful accounts based on the assessment of the recoverability of receivable balances from each customer taking into account historic collection trends of past due accounts. Receivables are written off once determined not to be collectible. On average, Saputo will generally have 10% of receivables that are due beyond normal terms, but are not decreased. However, Saputo management does not believe that these allowances
This pronouncement required the deferral method of accounting for income taxes. When the accounting net income exceeded taxable net income, balancing credit should be recognized, when the taxable net income exceeded the accounting, a balancing debit should be recognized. This was considered a deferred credit and a deferred debit. Deferred charges and credits were default classification and were placed on the Balance Sheet in what was called "no man's land," or some undefined region, between liabilities and owner's equity for deferred credits and between assets and liabilities for deferred charges. Under APB Opinion #11 it was believed that the balancing credits and debits would eventually reverse and cancel out and therefore it was to be treated as a temporary measure.
Accounting principles are main consideration , certain standards like rules of operations are pillar characteristicis to built accounting statements. Accounting principles can be presented in many ways, sometimes its create confusion for readers mainly for beginners, but still acoounting principles are main tool to obtained financial statements. Its hold the whole acoounting process together.
The study defines “default” is a risk to the repayment history of borrowers where the borrowers are missed at least three installments in 24 months. This showed a symbol and indication of borrower behavior will actually default to cease all repayments. This definition does not mean that the borrower had entirely stopped paying the loan and therefore been referred to collection or legal processes; or from an accounting perspective that the loan had been classified as bad or doubtful, or actually written-off (Pearson & Greeff, 2006).
Before we can go further into the accounting equation we must be able to recognize a transaction and be able to record it properly. A transaction is an event that affects the financial status of the company whether it increases or decreases an asset, liability, or stockholder’s equity. When a transaction occurs, there needs to be a detailed description of the transaction in order for the accountant to record it properly. For instance, a detailed transaction is JoJo’s Bakery paid a salary expense of $2,400 on August 5, 2015. A transaction that could not be recorded properly would be JoJo’s Bakery paid $2,400. An accountant needs to know the date of the transaction and the specifics, like the dollar amount, whether it was an expense, or if the money paid for the expense was a loan from the bank. All of these details are absolutely necessary in order to keep the accounting equation balanced. If we were to use the example above to record that into the accounting equation, we would record a negative $2,400 in assets (cash) and $2,400 in stockholder’s equity (expenses) and balance the total from any previous transactions. The reason for the negative $2,400 in assets (cash) and the positive $2,400 in stockholder’s equity (expenses) is that an expense is thought as a deduction, which is a negative amount and when calculated the accounting equation
If the extinguishment, for example of converting debt to stock, is determined to not be a capital transaction then the gain or loss is calculated by deducting the outstanding debt from net carrying value of the debt. “SFAS No. 4, effective until 2002, required that gains/losses from early debt retirements be reported as extraordinary items below the line, regardless of whether they were unusual or infrequent.” SFAS No. 145, issued on April 2002 and effective to this day, specifies that early extinguishment of debt resulting in gains or losses should only be classified as an extraordinary item if they are both unusual and
(Total Non-Current Assets – Other Non-Current Assets) – (Total Current Liabilities + Total Non-Current Liabilities)