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ESTIMATION OF NET REALIZABLE VALUE Collection:

Terms related to freight charge Cash 95k Cash 95k


Ownership Who paid Sales disc 5k AR 95k
Fob Des, FP seller Seller AR 100k
FOB SP, FC Buyer Buyer Beyond disc period:
FOB Des, seller Buyer Cash 100k Cash 100k
FC AR 100k AR 95k
FOB SP, FP buyer seller Sales disc forfeited 5k

FOB DES, FC Accounting for bad debts


AR xx Cash xx Allowance Method Write Off Method
Freight out xx Sales disc. xx Provision of BD:
Sales Allow for FC xx Doubtful acc xx NO ENTRY
xx AR xx Allow for DA xx
Allow for freight Discovery of worthless
charge Allow for DA xx Bad debts xx
xx Accounts R. xx Accounts r. xx
FOB SP, FC Recovery
AR xx Cash xx Accounts R. xx (within the year)
sales xx Sales disc. Xx Allow for DA xx Accounts R xx
AR xx Bad Debts xx
FOB DES, FP Cash xx
AR xx Cash xx Accounts R. xx (different year)
Freight out xx Sales disc xx Accounts R. xx
Sales xx AR xx Miscellaneous In xx
Cash xx Cash xx
FOB SP, FP Accounts R. xx
AR xx Cash xx
Sales xx Sales disc xx Methods of estimating doubtful accounts
Cash xx AR xx 1.Aging or “statement of financial position
approach”
Customer’s credit balance – current liability
Adjusting entry: 2. percent of accounts receivable
Accounts receivable xx
Customer’s credit bal xx Required allowance 50
Less: Allow. bal. before adj. (10)
Allowance for sales returns Doubtful accounts expense 40
Actual: Estimated:
sales returns xx sales discount xx DA Expense entry:
AR xx allow for sales return x Doubtful Acc 40
Beg
Allow for DA 40
Provision
Allowance for sales discounts
Actual: Estimated: END
sales discount xx sales discount xx
AR xx allow for sales disc xx 3. percent of sales
Net sales (credit sales or total sales) xx
Methods of recording CREDIT SALES Multiply: certain rate xx
Gross Method Net Method Doubtful account expense xx
Recording: (net of discount)
AR 100k AR 95k
Sales 100k Sales 95k