Accounts Receivable and Impairments

8/9/2019 Accounts Receivable and Impairments

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Accounts Receivable and

Impairments


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Review of Accounting for

Accounts Receivable

• Typically recognize sales revenue at sale

Accounts Receivable 840

Sales Revenue 840

• What about estimated uncollectibles? – Same issue with other assets that may be worth

less than carrying value inventory! ""#$! etc%&


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Allowance method

• 'enerally re(uired )or )inancial reporting

• Record estimated bad debt e*pense and accountsreceivable contra account at sale

Bad Debt Exp. (or Sales contra) 8.4

Allow. For DA (AR contra) 8.4

• +et income e))ect at time o) sale


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• +o net income e))ect at time o) write,o))

Allowance or Doubtul Accounts !."

Accounts Receivable !."

• Reverse out entry i) later collected

Accounts Receivable !."

Allowance or DA !."


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• -atch revenue # e*penses in period o) sale

• Records net accounts receivable at e*pected

cash collection

• .iscretion in estimating bad debt e*pense


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• Ad/ust estimate at period,end i) necessary

• 0ow to estimate bad debts?

– "ercentage o) sales

– Aging o) accounts receivables

– 1)ten A% and 2% are used in combination

Allowance or DA 0.8 Bad Debt Expense 0.8

To reduce allowance based on period,end A3R


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• 1ther applications

– Sales return and cash discounts

– Inventory obsolescence


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4rom 5o6e7s 89,:


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ACCOUNTS RECEIVABLE AND

BAD DEBTS TACCOUNTS'ross& Accounts Receivable

2eg% 2al%

5redit Sales 5ollections

Write,o))s

$nding 2al%

Allowance )or .oubt)ul Accounts

2eg% 2al%

Write,o))s 2ad .ebt $*p%

$nding 2al%


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ACCOUNTS RECEIVABLE AND

BAD DEBTS TACCOUNTS'ross& Accounts Receivable

2eg% 2al%

;8!


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1ther Allowances and Reserves

• Impairment allowances

– I) ""#$ is not e*pected to return its net 2C

#$pair$ent %oss !00

&&'E (or contra) !00

– .epreciate based on remaining li)e and new boo6value

– Ta6e the 23S and I3S hit when the value drops


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"layer trading pro)its were 8%< million pounds due largely

to the trans)er o) $ngland captain .avid 2ec6ham to Real -adrid!

but were down )rom last yearDs pro)it o) 8B%= million pounds as the

club too6 a write down on the value o) Argentine mid)ielder EuanSebastian Ceron be)ore his subse(uent sale to 5helsea%

FThese are a crac6ing set o) results! but there are

a lot o) one,o))s this year and they may struggle to

match them ne*t year on a li6e,)or,li6e basis!F said

analyst Andrew Gee at .resdner :leinwort Wasserstein

G1+.1+! Sept @9 Reuters& , -anchester Hnited sought to play

down persistent ta6eover speculation surrounding the premier

league champions on Tuesday as success on and o)) the pitch boosted

annual pro)its by percent%


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• Reverse out the liability when you pay cash

Restructurin, %iabilit 40

*as+ 40

• .epreciate remaining ""#$ balance over

remaining li)e


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Accounts Receivable and Impairments

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