Audit Of Receivables
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AUDIT OF RECEIVABLES
Methods of estimating doubtful accounts Result Aging of Accounts Receivable
Required Allowance for Credit Loss
Percent of Accounts Receivable
Required Allowance for Credit Loss
Percent of Sales
Bad Debt Expense (Expected Credit Loss)
Accounts Receivable Jan 1. 1 2 3 4 5 6 7
672,000 2,623,800 (2,523,000) (41,400)
Allowance for Credit Loss 42,300
Notes Receivable Notes Discounted Receivable 179,400
114,400
(87,000) 216,000 (108,000)
(108,000)
(41,400)
(216,000) 6,075
(6,000)
(6,000) 135,000
_________
_________
194,400
135,000
8 9
1,500 (1,500)
10
(6,000)
11 Dec. 31
_________ 515,475
1,500
39,357 _________ 41,757
Current 1-30 Days 31-60 Days 61-90 More than 90 Days
Current 1-30 Days 31-60 Days 61-90 More than 90 Days
Gross Carrying Amount 7,500,000 3,750,000 2,000,000 1,250,000 500,000 Gross Carrying Amount 8,000,000 4,000,000 2,500,000 1,750,000 750,000
Expected Default Rate 0.15% 0.80% 1.80% 3.30% 5.30%
Credit Loss Allowance 11,250 30,000 36,000 41,250 26,500 145,000
Expected Default Rate 0.25% 0.90% 1.90% 3.50% 5.50%
Credit Loss Allowance 20,000 36,000 47,500 61,250 41,250 206,000
Adjustment for 2019 Required Allowance for Credit Loss Beginning Allowance for Credit Loss Expected Credit Loss Entry:
Expected Credit Loss 61,000 Allowance for Credit Loss
206,000 (145,000) 61,000
61,000
Accounts Receivable per general ledger
505,000
AA CO
(23,000)
BB CO CC CO DD CO EE CO FF CO GG CO
(40,000)
HH CO
(10,000)
II CO Adjusted Balance
(10,000) (31,000) 10,000 40,000 _________ 441,000
Invoice Number No. 5329 5328 5332 5331
Amount 191,430 62,022 264,131 10,639 _______________
Net Understatement
21,318
Entry
3. B 4. B 5. D
Accounts Receivable 21,318 Sales 21,318
Overstatement Overstatement Understatement Understatement
1. Merchandise Purchase Less: End, Inventory
450,000 (123,000)
Cost of Goods Sold X Sales Ratio Sales
327,000 X 130%
425,100
Less: Collections (150,000) Accounts Receivable, end275,100
2. First year of operations Expected Credit Loss will be equal to Allowance for Credit Loss Accounts Receivable Less: AFCL Accounts Receivable, Net
~1,130,600~ 235,600 895,000
Allowance for Credit Loss Unadj. Less: Write-off
271,000 (35,400)
Allowance for Credit Loss Adj, 235,600
3. Accounts Receivable Less: AFCL
460,000 (95,000)
Accounts Receivable, Net365,000
4. Accounts Receivable Turnover =
Net Sales_____ Avg. AR, net
6.5 = 2,600,000 (460,000+X)/2 Accounts Receivable
~360,000~
Less: AFCL (20,000) AR, Net Dec. 31, 2018 340,000
2,600,000/6.5= 400,000 400,000 x 2= 800,000 800,000-460,000= 340,000 AR, Net Dec. 31, 2018= 340,000
Required Allowance Debit Bal of AFCL
9,699 (5,500)
Increase in Allowance
15,199
Entry Expected Credit Loss 15,199 Allowance for Credit Loss
Gross Carrying Amount 1-30 Days 31-60 Days 61-90 91-120 Over 120 Days
65,600 44,320 32,600 29,400 8,920
Credit Loss Allowance
Expected Default Rate 1% 1.5% 3.0% 10% 50% Total
656 665 978 2,940 4,460 9,699
15,199
5. Accounts Receivable 180,840 Less: AFCL 9,699 AR, Net 171,141
Gross Carrying Amount 0-30 Days 31-60 Days 61-90 91-120 Over 120 Days
843,200 461,000 192,400 76,650 39,400
Expected Default Rate .46% 1.72% 10.38% 41.80% 76.00%
Accounts Receivable 1,612,650 Less: AFCL (93,763) AR, Net 1,518,887 Entry
Allowance for Credit Loss 3,878.72 7,929.20 19,971.12 32,039.70 29,944.00 93,762.74 Required Allowance
93,763
AFCL unadjusted Increase in allowance
84,500 9,263
Expected Credit Loss 9,263 Allowance for Credit Loss
9,263
1. No effect on Total Assets and Net Income 2. Credit Sales (4,000,000-400,000)
Accounts Receivable (1,500,000-20,000) Less: AFCL AR, Net
3,600,000
Less: Sales Discount (250,000) Sales Return & Allowances (350,000) Net Credit Sales X Bad Debt Rate Expected Credit Loss
3,000,000 x 1.5%___ 45,000 Account Balance
Less than 60 days 61-90 91-120 Over 120 Days Required Allowance Allowance Balance Increase in Allowance
1,377,700
5. D
780,000 230,000 420,000 50,000
Expected Default Rate 1% 5% 15% 40%
(33,000-20,000 +45,000)
1,480,000 (102,300) ___________
Allowance for Credit Loss 7,800 11,500 63,000 20,000 102,300 58,000 __________ 44,300
1. Accounts Receivable, Dec. 31, 2018 AR, Jan 1, 2018 Sales
1,800,000 15,000,000
Collections for the year (13,080,000- 30,000) Write-off
(13,050,000) (150,000)
Notes to settle AR AR, Dec. 31, 2018
(600,000) 3,000,000
2. Allowance for Credit loss before adjustments on Dec. 31, 2018 AFCL, Jan. 1, 2018 Recovery Write-off AFCL, Dec. 31 (Debit)
90,000 30,000 (150,000) (30,000)
3. Required AFCL on Dec. 31, 2018 Past Due Accounts
900,000 x 20%
Current Accounts
(3M-900k) x 5%
Required AFCL on Dec. 31, 2018
180,000 105,000 _________ 285,000
4. Increase in AFCL Balance before Adjustment
(30,000)
Required AFCL on Dec. 31, 2018
285,000
Increase in Allowance
315,000
5. Entry Expected Credit Loss 315,000 Allowance for Credit Loss
315,000
1. AFCL on Dec. 31, 2018 before adjustments AFCL. Jan 1, 2018
143,000
Interim Provision for credit loss (15,000,000 x 2%)
300,000 (140,000)
Write-off Recoveries
43,000 (120,000) __________ 226,000
Write-off
2. Year-end Adjustment
Balance 2,160,000 1,300,000 840,000 180,000
Interim Provision for credit loss Increase in Allowance Total Expected Credit Loss 4. Accounts Rec., Dec 31,2018 (4,600,000-120,000) Less: AFCL, Dec 31, 2018 Net AR, Dec. 31, 2018
300,000 283,200 583,200
4,480,000 (509,200) 3,970,800
5. Valuation and Allocation
Schedule of Aging of Receivables Classification Nov-Dec 2018 July-Oct 2018 Jan-June 2018 Prior to Jan, 2018
3. Expected Credit Loss for 2018
Expected Default Rate 2% 10% 25% 70%
Allowance for Credit Loss 43,200 130,000 210,000 126,000
Required Allowance, Dec. 31, 2018
509,200
Balance before adjustment Increase in Allowance
226,000 283,200
Entry Expected Credit Loss 283,200 AFCL 283,200
1, Adjusting Entry for error on Dec. 1, 2018 Entry Made Cash 1,296 Expected Credit Loss 1,296 Should be Entries AR 1,296 AFCL 1,296
Adjusting Entry Expected Credit Loss AFCL
1,296 1,296
Cash 1,296 AR 1,296 2. Age
Balance
0-1 month 1-3 months 3-6 months Over 6 months
372,960 307,280 88,720 24,000
Adjusted Rate Adjustments Balance 1% 380,960 8,000 2% 309,280 2,000 3% 88,720 50% 8,000 (4,000) 20% 12,000 Required Allowance for Credit Loss
Required Allowance 3,810 6,186 2,662 4,000 2,400 19,058
3. Net Realizable Value of AR Dec. 31,2018 Control Account Unadjusted Balances
788,000
Write of Uncollectible Over 6 months period
Corrected Balance Unallocated Difference (798,960-793,200) Adjusted Balance
792,960
(800)
Error on Oct. 31 (6,832-6,032)
Customers Credit Balance
Subsidiary Ledgers
(4,000)
(4,000)
10,000 _________ 793,200
10,000 _________ 798,960
5,760 _________ 798,960
_________
Required Allowance for Credit Loss Net Realizable Value of AR Dec. 31,2018
798,960 (19,058) 779,902
4 and 5 AFCL before adjustment, Dec. 31 Balancer per books 32,858 Recovery
1,296
Error on Oct. 31 Unrecorded Write-off
(800) (4,000)
AFCL before adjustment 29,354 Required AFCL Decrease in Allowance Entry Allowance for Credit Loss Expected Credit Loss
19,058 (10,296)
10,296 10,296
Total Expected Credit Loss for 2018 Expected Credit Loss recorded 23,640 Decrease in Allowance (10,296) Corrected Expected Loss for 2018 13,344
1. Total sales for the 3 year period
Computing for Cost Goods Sold to get the Gross Profit Rate
AR, Beg 16,600 ~584,000~ + Sales - Collection (567,600) 33,000 AR, End
Purchases AP, beg +Purchases -Payments AP, end
Total Credit Sales 584,000 Total Cash Sales 74,200 Total Sales 658,200
5,000 ~446,000~ (440,000) 11,000
Sales 658,200 COGS Inventory, beg 11,600 Purchases 446,000 TGAS 457,600 Less: Invty, end (18,800) Gross Profit
438,800
219,400 Gross Profit Ratio= 219,400 = = 33 1/3% 658,200
Gross profit for each year 2016 Cash Sales
17,000
2017 26,000
2018 31,200
Total 74,200
Collections in: 2016 2017 2018 A/R, Dec 31 Total Sales X GPR Gross Profit
148,800 15,000 2,000 800 __________ 183,600 X 33 1/3% __________ 61,200
0 161,800 16,800 1,800 __________ 206,400 X 33 1/3% __________ 68,800
208,800 28,200 __________ 268,200 X 33 1/3% __________ 89,400
148,800 176,800 227,600 30,800 __________ 658,200 X 33 1/3% __________ 219,400
1. Adjusted balance on 1 to 6 months AR Unadjusted Balances 184,000 Error- Credit to DD Co. __________ (7,000) Adjusted Balances
177,000
2. Adjusted balance on over 6months AR Unadjusted Balances Write-off Adjusted Balances
76,000 (24,000) __________ 52,000
3. Adjusted balance of AR on Dec. 31, 2018 Adj. bal.1 to 6 mos AR
177,000
Adj. bal. over mos AR
52,000
Adj. bal. under 1 mo.
180,000 __________ 409,000
Adjusted Balance
4. Allowance for Credit Loss balance Adj. Bal Rate Required Allowance Period 1,800 180,000 1% Under 1 mo 3,540 177,000 2% 1-6 mos Over 6 mos 50% 6,000 12,000 Doubtful 10% __________ 4,000 40,000 Good but slow Total Required Allowance 15,340 5. Entry to adjust AFCL Allowance Balance Beg, 10,000 Prov. 24,000 W/O (8,000) W/O __________ (24,000)
2,000
Required Allowance 15,340 Increase in Allowance 13,340 Entry: Expected Credit Loss 13,340 Allowance for Credit Loss 13,340
3. Net, AR Dec. 31 Accounts Receivable 3,000,000 Less: AFCL (154,200) Net, AR Dec. 31
4. Correct Expected Credit Loss
2. Entry AFCL, Jan 1
Expected Credit loss recorded 640,000
54,600
Add: Expected Credit loss Less: Write-off
640,000 (585,000) ___________
Allowance before adj. Required Allowance
109,600 154,200 ___________
Increase in Allowance
2,845,800
44,600
Entry: Expected Credit Loss 44,600 AFCL 44,600
Add: Adjusting Entry 44,600 Corrected Expected Credit Loss 684,700
5. Total Credit sales 640,000/ 4% = 16,000,000
Forms of Accounts Receivable Financing A. Pledge of Accounts Receivable
Accounting Treatment No entry, necessary. Disclosure to Notes to FS is sufficient
B. Assignment of Accounts Receivable 1. Nonnotification Basis
The assignor continues to collect the Receivable Normal Entries for collection, just substitute Accounts Receivable with Accounts Receivable-assigned
2. Notification Basis
C. Factoring of Accounts Receivable
The assignee will continue to collect the Receivable Entries are only made upon notice from the assignee Factoring transfer actual ownership of the receivable to the factor Entries to made are only the factoring and the subsequent adjustments to the Factor’s Holdback
1. Net, AR 260,000 Less: Cash Proceeds 230,000 Loss on Factoring 30,000 Entry Cash 207,000 (230,000x90%) Rec. fr. Factor 23,000 (230,000x10%) Loss on Factoring 30,000 AFCL 40,000 Accounts Receivable 300,000
2. Journal Entries April 1 Accounts Receivable-assigned 400,000 Accounts Receivable Cash 294,000 Finance Charge 6,000 Notes Payable A
B
Cash 191,100 Sales Discount 3,900 Accounts Receivable- assigned (191,100/98%) Notes Payable 195,000 Interest Expense 4,000 Cash
400,000
300,000
195,000
(300,000 x 16% x 1/12)
199,000
C
Allowance for Credit Loss 2,000 Accounts Receivable-assigned
2,000
Cash 203,000 Accounts Receivable-assigned
203,000
(400,000-195,000-2,000) D
Notes Payable Interest Expense Cash
105,000 1,400 106,400
(105,000 x 16% x 1/12)
Rosal’s Books
Poor Inc.’s Books Jan 3
Cash
750,000
Rec. fr Factor Comm. Exp.
100,000 150,000
Accounts Receivable 1,000,000 Jan 31
Cash
80,000
Rec. fr Factor
Accounts Receivable factored 1,000,000 Commission Income 150,000 Client Retainer 100,000 Cash Cash
80,000
750,000 800,000
Accounts Receivable factored 800,000 Client Retainer 80,000 Cash 80,000 Bad Debt Expense
50,000
Allowance for Bad Debts
50,000
1. NR-Trade Valerie NR 600,000 Tictic NR 900,000 Total NR-Trade 1,500,000 2. Loss on Discounting Principal 80,000 Total Interest 4,000 Maturity Value 84,000
(80,000 x 20% x 3/12)
Discount (3,500) Net Proceeds
(84,500 x 25% x 2/12) 80,500
Carrying Amount of Note Rec. Discount Formula = Maturity Value x Discount Rate x Time Remaining
Accrued Interest 1,333 Principal 80,000
(80,000 x 20% x 1/12)
Total Carrying Amount Loss on Discounting of Cornea Note
81,333 833
Principal/Maturity Value 500,000 Discount (90,000) Net Proceeds 410,000
(500,000 x 18% x 1)
Carrying Amount 500,000 Loss on Discounting- Cellular Note 90,000 Loss on Discounting of Cornea Note Loss on Discounting- Cellular Note Total Loss
833 90,000
90,833
3. Total Accrued Interest Receivable Hunk (300,000 x 24% x 3/12) Valerie (600,000 x 24% x 2/12) Tictic (900,000 x 18%x1/12) O. Reyes (1,200,000 x 12% x 1/12)
18,000 24,000 13,500 12,000
Total Accrued Interest Receivable
67,500
1.
Methods of estimating doubtful accounts Result Aging of Accounts Receivable
Required Allowance for Credit Loss
Percent of Accounts Receivable
Required Allowance for Credit Loss
Percent of Sales
Bad Debt Expense (Expected Credit Loss)
Accounts Receivable Jan 1. 1 2 3 4 5 6 7
672,000 2,623,800 (2,523,000) (41,400)
Allowance for Credit Loss 42,300
Notes Receivable Notes Discounted Receivable 179,400
114,400
(87,000) 216,000 (108,000)
(108,000)
(41,400)
(216,000) 6,075
(6,000)
(6,000) 135,000
_________
_________
194,400
135,000
8 9
1,500 (1,500)
10
(6,000)
11 Dec. 31
_________ 515,475
1,500
39,357 _________ 41,757
Current 1-30 Days 31-60 Days 61-90 More than 90 Days
Current 1-30 Days 31-60 Days 61-90 More than 90 Days
Gross Carrying Amount 7,500,000 3,750,000 2,000,000 1,250,000 500,000 Gross Carrying Amount 8,000,000 4,000,000 2,500,000 1,750,000 750,000
Expected Default Rate 0.15% 0.80% 1.80% 3.30% 5.30%
Credit Loss Allowance 11,250 30,000 36,000 41,250 26,500 145,000
Expected Default Rate 0.25% 0.90% 1.90% 3.50% 5.50%
Credit Loss Allowance 20,000 36,000 47,500 61,250 41,250 206,000
Adjustment for 2019 Required Allowance for Credit Loss Beginning Allowance for Credit Loss Expected Credit Loss Entry:
Expected Credit Loss 61,000 Allowance for Credit Loss
206,000 (145,000) 61,000
61,000
Accounts Receivable per general ledger
505,000
AA CO
(23,000)
BB CO CC CO DD CO EE CO FF CO GG CO
(40,000)
HH CO
(10,000)
II CO Adjusted Balance
(10,000) (31,000) 10,000 40,000 _________ 441,000
Invoice Number No. 5329 5328 5332 5331
Amount 191,430 62,022 264,131 10,639 _______________
Net Understatement
21,318
Entry
3. B 4. B 5. D
Accounts Receivable 21,318 Sales 21,318
Overstatement Overstatement Understatement Understatement
1. Merchandise Purchase Less: End, Inventory
450,000 (123,000)
Cost of Goods Sold X Sales Ratio Sales
327,000 X 130%
425,100
Less: Collections (150,000) Accounts Receivable, end275,100
2. First year of operations Expected Credit Loss will be equal to Allowance for Credit Loss Accounts Receivable Less: AFCL Accounts Receivable, Net
~1,130,600~ 235,600 895,000
Allowance for Credit Loss Unadj. Less: Write-off
271,000 (35,400)
Allowance for Credit Loss Adj, 235,600
3. Accounts Receivable Less: AFCL
460,000 (95,000)
Accounts Receivable, Net365,000
4. Accounts Receivable Turnover =
Net Sales_____ Avg. AR, net
6.5 = 2,600,000 (460,000+X)/2 Accounts Receivable
~360,000~
Less: AFCL (20,000) AR, Net Dec. 31, 2018 340,000
2,600,000/6.5= 400,000 400,000 x 2= 800,000 800,000-460,000= 340,000 AR, Net Dec. 31, 2018= 340,000
Required Allowance Debit Bal of AFCL
9,699 (5,500)
Increase in Allowance
15,199
Entry Expected Credit Loss 15,199 Allowance for Credit Loss
Gross Carrying Amount 1-30 Days 31-60 Days 61-90 91-120 Over 120 Days
65,600 44,320 32,600 29,400 8,920
Credit Loss Allowance
Expected Default Rate 1% 1.5% 3.0% 10% 50% Total
656 665 978 2,940 4,460 9,699
15,199
5. Accounts Receivable 180,840 Less: AFCL 9,699 AR, Net 171,141
Gross Carrying Amount 0-30 Days 31-60 Days 61-90 91-120 Over 120 Days
843,200 461,000 192,400 76,650 39,400
Expected Default Rate .46% 1.72% 10.38% 41.80% 76.00%
Accounts Receivable 1,612,650 Less: AFCL (93,763) AR, Net 1,518,887 Entry
Allowance for Credit Loss 3,878.72 7,929.20 19,971.12 32,039.70 29,944.00 93,762.74 Required Allowance
93,763
AFCL unadjusted Increase in allowance
84,500 9,263
Expected Credit Loss 9,263 Allowance for Credit Loss
9,263
1. No effect on Total Assets and Net Income 2. Credit Sales (4,000,000-400,000)
Accounts Receivable (1,500,000-20,000) Less: AFCL AR, Net
3,600,000
Less: Sales Discount (250,000) Sales Return & Allowances (350,000) Net Credit Sales X Bad Debt Rate Expected Credit Loss
3,000,000 x 1.5%___ 45,000 Account Balance
Less than 60 days 61-90 91-120 Over 120 Days Required Allowance Allowance Balance Increase in Allowance
1,377,700
5. D
780,000 230,000 420,000 50,000
Expected Default Rate 1% 5% 15% 40%
(33,000-20,000 +45,000)
1,480,000 (102,300) ___________
Allowance for Credit Loss 7,800 11,500 63,000 20,000 102,300 58,000 __________ 44,300
1. Accounts Receivable, Dec. 31, 2018 AR, Jan 1, 2018 Sales
1,800,000 15,000,000
Collections for the year (13,080,000- 30,000) Write-off
(13,050,000) (150,000)
Notes to settle AR AR, Dec. 31, 2018
(600,000) 3,000,000
2. Allowance for Credit loss before adjustments on Dec. 31, 2018 AFCL, Jan. 1, 2018 Recovery Write-off AFCL, Dec. 31 (Debit)
90,000 30,000 (150,000) (30,000)
3. Required AFCL on Dec. 31, 2018 Past Due Accounts
900,000 x 20%
Current Accounts
(3M-900k) x 5%
Required AFCL on Dec. 31, 2018
180,000 105,000 _________ 285,000
4. Increase in AFCL Balance before Adjustment
(30,000)
Required AFCL on Dec. 31, 2018
285,000
Increase in Allowance
315,000
5. Entry Expected Credit Loss 315,000 Allowance for Credit Loss
315,000
1. AFCL on Dec. 31, 2018 before adjustments AFCL. Jan 1, 2018
143,000
Interim Provision for credit loss (15,000,000 x 2%)
300,000 (140,000)
Write-off Recoveries
43,000 (120,000) __________ 226,000
Write-off
2. Year-end Adjustment
Balance 2,160,000 1,300,000 840,000 180,000
Interim Provision for credit loss Increase in Allowance Total Expected Credit Loss 4. Accounts Rec., Dec 31,2018 (4,600,000-120,000) Less: AFCL, Dec 31, 2018 Net AR, Dec. 31, 2018
300,000 283,200 583,200
4,480,000 (509,200) 3,970,800
5. Valuation and Allocation
Schedule of Aging of Receivables Classification Nov-Dec 2018 July-Oct 2018 Jan-June 2018 Prior to Jan, 2018
3. Expected Credit Loss for 2018
Expected Default Rate 2% 10% 25% 70%
Allowance for Credit Loss 43,200 130,000 210,000 126,000
Required Allowance, Dec. 31, 2018
509,200
Balance before adjustment Increase in Allowance
226,000 283,200
Entry Expected Credit Loss 283,200 AFCL 283,200
1, Adjusting Entry for error on Dec. 1, 2018 Entry Made Cash 1,296 Expected Credit Loss 1,296 Should be Entries AR 1,296 AFCL 1,296
Adjusting Entry Expected Credit Loss AFCL
1,296 1,296
Cash 1,296 AR 1,296 2. Age
Balance
0-1 month 1-3 months 3-6 months Over 6 months
372,960 307,280 88,720 24,000
Adjusted Rate Adjustments Balance 1% 380,960 8,000 2% 309,280 2,000 3% 88,720 50% 8,000 (4,000) 20% 12,000 Required Allowance for Credit Loss
Required Allowance 3,810 6,186 2,662 4,000 2,400 19,058
3. Net Realizable Value of AR Dec. 31,2018 Control Account Unadjusted Balances
788,000
Write of Uncollectible Over 6 months period
Corrected Balance Unallocated Difference (798,960-793,200) Adjusted Balance
792,960
(800)
Error on Oct. 31 (6,832-6,032)
Customers Credit Balance
Subsidiary Ledgers
(4,000)
(4,000)
10,000 _________ 793,200
10,000 _________ 798,960
5,760 _________ 798,960
_________
Required Allowance for Credit Loss Net Realizable Value of AR Dec. 31,2018
798,960 (19,058) 779,902
4 and 5 AFCL before adjustment, Dec. 31 Balancer per books 32,858 Recovery
1,296
Error on Oct. 31 Unrecorded Write-off
(800) (4,000)
AFCL before adjustment 29,354 Required AFCL Decrease in Allowance Entry Allowance for Credit Loss Expected Credit Loss
19,058 (10,296)
10,296 10,296
Total Expected Credit Loss for 2018 Expected Credit Loss recorded 23,640 Decrease in Allowance (10,296) Corrected Expected Loss for 2018 13,344
1. Total sales for the 3 year period
Computing for Cost Goods Sold to get the Gross Profit Rate
AR, Beg 16,600 ~584,000~ + Sales - Collection (567,600) 33,000 AR, End
Purchases AP, beg +Purchases -Payments AP, end
Total Credit Sales 584,000 Total Cash Sales 74,200 Total Sales 658,200
5,000 ~446,000~ (440,000) 11,000
Sales 658,200 COGS Inventory, beg 11,600 Purchases 446,000 TGAS 457,600 Less: Invty, end (18,800) Gross Profit
438,800
219,400 Gross Profit Ratio= 219,400 = = 33 1/3% 658,200
Gross profit for each year 2016 Cash Sales
17,000
2017 26,000
2018 31,200
Total 74,200
Collections in: 2016 2017 2018 A/R, Dec 31 Total Sales X GPR Gross Profit
148,800 15,000 2,000 800 __________ 183,600 X 33 1/3% __________ 61,200
0 161,800 16,800 1,800 __________ 206,400 X 33 1/3% __________ 68,800
208,800 28,200 __________ 268,200 X 33 1/3% __________ 89,400
148,800 176,800 227,600 30,800 __________ 658,200 X 33 1/3% __________ 219,400
1. Adjusted balance on 1 to 6 months AR Unadjusted Balances 184,000 Error- Credit to DD Co. __________ (7,000) Adjusted Balances
177,000
2. Adjusted balance on over 6months AR Unadjusted Balances Write-off Adjusted Balances
76,000 (24,000) __________ 52,000
3. Adjusted balance of AR on Dec. 31, 2018 Adj. bal.1 to 6 mos AR
177,000
Adj. bal. over mos AR
52,000
Adj. bal. under 1 mo.
180,000 __________ 409,000
Adjusted Balance
4. Allowance for Credit Loss balance Adj. Bal Rate Required Allowance Period 1,800 180,000 1% Under 1 mo 3,540 177,000 2% 1-6 mos Over 6 mos 50% 6,000 12,000 Doubtful 10% __________ 4,000 40,000 Good but slow Total Required Allowance 15,340 5. Entry to adjust AFCL Allowance Balance Beg, 10,000 Prov. 24,000 W/O (8,000) W/O __________ (24,000)
2,000
Required Allowance 15,340 Increase in Allowance 13,340 Entry: Expected Credit Loss 13,340 Allowance for Credit Loss 13,340
3. Net, AR Dec. 31 Accounts Receivable 3,000,000 Less: AFCL (154,200) Net, AR Dec. 31
4. Correct Expected Credit Loss
2. Entry AFCL, Jan 1
Expected Credit loss recorded 640,000
54,600
Add: Expected Credit loss Less: Write-off
640,000 (585,000) ___________
Allowance before adj. Required Allowance
109,600 154,200 ___________
Increase in Allowance
2,845,800
44,600
Entry: Expected Credit Loss 44,600 AFCL 44,600
Add: Adjusting Entry 44,600 Corrected Expected Credit Loss 684,700
5. Total Credit sales 640,000/ 4% = 16,000,000
Forms of Accounts Receivable Financing A. Pledge of Accounts Receivable
Accounting Treatment No entry, necessary. Disclosure to Notes to FS is sufficient
B. Assignment of Accounts Receivable 1. Nonnotification Basis
The assignor continues to collect the Receivable Normal Entries for collection, just substitute Accounts Receivable with Accounts Receivable-assigned
2. Notification Basis
C. Factoring of Accounts Receivable
The assignee will continue to collect the Receivable Entries are only made upon notice from the assignee Factoring transfer actual ownership of the receivable to the factor Entries to made are only the factoring and the subsequent adjustments to the Factor’s Holdback
1. Net, AR 260,000 Less: Cash Proceeds 230,000 Loss on Factoring 30,000 Entry Cash 207,000 (230,000x90%) Rec. fr. Factor 23,000 (230,000x10%) Loss on Factoring 30,000 AFCL 40,000 Accounts Receivable 300,000
2. Journal Entries April 1 Accounts Receivable-assigned 400,000 Accounts Receivable Cash 294,000 Finance Charge 6,000 Notes Payable A
B
Cash 191,100 Sales Discount 3,900 Accounts Receivable- assigned (191,100/98%) Notes Payable 195,000 Interest Expense 4,000 Cash
400,000
300,000
195,000
(300,000 x 16% x 1/12)
199,000
C
Allowance for Credit Loss 2,000 Accounts Receivable-assigned
2,000
Cash 203,000 Accounts Receivable-assigned
203,000
(400,000-195,000-2,000) D
Notes Payable Interest Expense Cash
105,000 1,400 106,400
(105,000 x 16% x 1/12)
Rosal’s Books
Poor Inc.’s Books Jan 3
Cash
750,000
Rec. fr Factor Comm. Exp.
100,000 150,000
Accounts Receivable 1,000,000 Jan 31
Cash
80,000
Rec. fr Factor
Accounts Receivable factored 1,000,000 Commission Income 150,000 Client Retainer 100,000 Cash Cash
80,000
750,000 800,000
Accounts Receivable factored 800,000 Client Retainer 80,000 Cash 80,000 Bad Debt Expense
50,000
Allowance for Bad Debts
50,000
1. NR-Trade Valerie NR 600,000 Tictic NR 900,000 Total NR-Trade 1,500,000 2. Loss on Discounting Principal 80,000 Total Interest 4,000 Maturity Value 84,000
(80,000 x 20% x 3/12)
Discount (3,500) Net Proceeds
(84,500 x 25% x 2/12) 80,500
Carrying Amount of Note Rec. Discount Formula = Maturity Value x Discount Rate x Time Remaining
Accrued Interest 1,333 Principal 80,000
(80,000 x 20% x 1/12)
Total Carrying Amount Loss on Discounting of Cornea Note
81,333 833
Principal/Maturity Value 500,000 Discount (90,000) Net Proceeds 410,000
(500,000 x 18% x 1)
Carrying Amount 500,000 Loss on Discounting- Cellular Note 90,000 Loss on Discounting of Cornea Note Loss on Discounting- Cellular Note Total Loss
833 90,000
90,833
3. Total Accrued Interest Receivable Hunk (300,000 x 24% x 3/12) Valerie (600,000 x 24% x 2/12) Tictic (900,000 x 18%x1/12) O. Reyes (1,200,000 x 12% x 1/12)
18,000 24,000 13,500 12,000
Total Accrued Interest Receivable
67,500
1.
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