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Accounting Stuff Essay

5866 words - 24 pages

Chapter 10
1.

Receivables

Chapter Opening Vignette Critical Thinking Challenge Questions* How are Sun-Rype’s customers different from CIBC’s? - Sun-Rype’s customers are mainly companies (grocery stores/chains/distribution centres) who buy Sun-Rype’s food and beverage products. CIBC’s customers are individuals as well as companies who purchase CIBC’s financial services/products. - There may be less risk associated with Sun-Rype’s credit customers than with CIBC’s customers since the dollar amount of CIBC’s transactions are significantly larger than Sun-Rype’s 2. Why would CIBC experience a higher rate of uncollectible accounts than SunRype does? - Sun-Rype’s primary customers would ...view middle of the document...

The adjusted balances of Bad Debt Expense and Allowance for Doubtful Accounts are virtually never equal because the expense describes only the events of the current year, and the allowance is the accumulated result of events over a number of past years. The only way that they could be equal would be if write-offs during the past year exactly equalled the beginning balance of the allowance. Revenues and expenses are not matched under the direct write-off method because the revenue from the bad debt sales often appears on the income statement of one period while the expense of getting those sales appears on the income statement of a later period. The accounting principle of materiality holds that the requirements of accounting principles may be ignored if the effect on the financial statements is unimportant to their users. Creditors prefer notes to accounts receivable because the notes can be more easily converted into cash before becoming due by discounting (or selling) them to a bank. Also, a note represents a clear written acknowledgement by the debtor of both the debt and its amount and terms. Accounts receivable increased a total of $31,000 from $724,000 at June 30, 2007 to $755,000 at June 28, 2008.

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*7. If receivables are sold without recourse then the buyer of the receivables has responsibility to make sure the accounts are ultimately collected and takes the loss for any bad debts.

Copyright © 2010 by McGraw-Hill Ryerson Limited. All rights reserved. Solutions Manual for Chapter 10

810

QUICK STUDY Quick Study 10-1 March 1 Accounts Receivable – JP Holdings ............................ Sales....................................................................... To record sale terms n/30. COGS ............................................................................. Merchandise Inventory ......................................... To record cost of sale. Cash ............................................................................... Accounts Receivable – JP Holdings .................... To record receipt of payment in full. 40,000 40,000

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32,000 32,000

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40,000 40,000

Copyright © 2010 by McGraw-Hill Ryerson Limited. All rights reserved. 811

Fundamental Accounting Principles, Thirteenth Canadian Edition

Quick Study 10-2

March

4 Accounts Receivable – Various.................................. Service Revenue ................................................ Performed work for a customer on account. 15 Cash ............................................................................. Accounts Receivable – Various ........................ Collected cash from credit customers. 20 Allowance for Doubtful Accounts .............................. Accounts Receivable – Tom Williams .............. Wrote off customer account. 25 Accounts Receivable – Tom Williams ........................ Allowance for Doubtful Accounts .................... Reversed the write-off. 25 Cash...

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