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Chapter 7
PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin Copyright 2012 The McGraw-Hill Companies, Inc.7-1
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Cash
Coins and paper money
Checks
Money orders
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Cash Management
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Require daily deposits. Make all payments by check. Require that every expenditure be
verified before payment.
Cash Over and Short is debited for shortages and credited for overages.
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+ Deposits in Transit
- Outstanding Checks
9,610 500
Balance per depositor's records, July 31 $ Additions: Interest Deductions: Recording error NSF check Adjusted cash balance $ 28 225 $
253 7,207
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Jul 31 Cash
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Short-Term Investments
Bond Investments Capital Stock Investments
Readily Marketable
Current Assets
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Total Cost: (4,000 $48.98) + $80 = $196,000 Cost per Share: $196,000 4,000 = $49.00
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Sales Proceeds: (2,500 $48.01) - $25 = $120,000 Cost Basis: 2,500 $49 = $122,500 Loss on Sale: $120,000 - $122,500 = $2,500
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GENERAL JOURNAL
Date Account Titles and Explanation Uncollectible Accounts Expense Allowance for Doubtful Accounts Debit $$$$ $$$$ Credit
Selling expense
Contra-asset account
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Accounts receivable Less: Allowance for doubtful accounts Net realizable value of accounts receivable
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Notice that the $500 write-off did not change the net realizable value nor did it affect any income statement accounts.
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Current 1 - 30 31 - 60 Over 60
1% $ 3% 5% 10% $
GENERAL JOURNAL
Date Account Titles and Explanation Allowance for Doubtful Accounts Debit 850 850
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Credit
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Estimating Credit Losses The Income Statement Approach In the current year, EastCo had credit sales
of $60,000. Historically, 1% of EastCos credit sales has been uncollectible. For the current year, the estimate of uncollectible accounts expense is $600. ($60,000 .01 = $600)
GENERAL JOURNAL
Date Account Titles and Explanation Allowance for Doubtful Accounts Debit 600 600
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Credit
Recovery of an Account Receivable Previously Written Off Subsequent collections require that the
original write-off entry be reversed before the cash collection is recorded.
GENERAL JOURNAL
Date Account Titles and Explanation Accounts Receivable (X Customer) Allowance for Doubtful Accounts Cash Accounts Receivable (X Customer) $$$$ $$$$
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Debit $$$$
Credit $$$$
GENERAL JOURNAL
Date Account Titles and Explanation Accounts Receivable (X Customer) Debit $$$$ $$$$ Credit
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Makerthe person who signs the note and thereby promises to pay. Payeethe person to whom payment is to be made.
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200 200
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End of Chapter 7
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