Understanding Accounts and Notes Receivable: Recognition, Valuation, and Disposal

Understanding Receivables: A Comprehensive Guide

This document outlines the key aspects of receivables, including accounts receivable (A/R) and notes receivable (N/R), focusing on recognition, valuation, and disposal.

Three Types of Receivables

  • Accounts Receivable: Customer owes the company on account.
  • Notes Receivable: Written promise with collection of interest.
  • Other Receivables: Nontrade receivables, including interest loans, advances, and income taxes.

Key Issues with Accounts Receivable

  1. Recognizing
  2. Valuing
  3. Disposing

Recognizing

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Core Accounting Entries: Debits and Credits Illustrated

Recording Financial Transactions

Sales and Customer Receipts

  • Sales Transaction:
    Debit: Banks, Customers
    Credit: Sales, VAT Payable
  • Document Signing (Notes Receivable):
    Debit: Notes Receivable
    (Implied Credit: Accounts Receivable/Sales)
  • Remaining Client Balances (Open Account):
    Debit: Accounts Receivable
  • Total Sales Recognition:
    Credit: Sales
  • Payment Received (Notes Receivable):
    Debit: Bank/Cash
    Credit: Notes Receivable
  • Payment Received (Client Balance):
    Debit: Bank/Cash
    Credit: Accounts Receivable
  • Sales Return:
    Debit:
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Essential Accounting Formulas for Financial Statements

Balance Sheet Equations

Assets = Liabilities + Equity

Current Ratio = Current Assets / Current Liabilities

Net Accounts Receivable = Gross Accounts Receivable – Allowance for Uncollectibles

Allowance for Uncollectibles = Gross Receivables x Estimated Percentage

Net Realizable Value (NRV) = Accounts Receivable – Ending Allowance for Doubtful Accounts

Equity and Stock Transactions

Issuing stock increases Equity.

Common Stock Balance = Number of Shares Issued x Par Value per Share

Additional Paid-in Capital

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Cash Flow Statement: Activities, Methods & Preparation

Understanding Cash Flow Activities

It is important to first identify the resources generated or used by the business during the accounting period, classified into three main areas:

  • Cash generated by or used for operating activities.
  • Cash generated by or used for investment activities.
  • Cash generated by or used in financing activities.

Operating Activities Cash Flow

Cash flow from operating activities represents the cash generated from the main, regular income-producing activities of the business. These

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Accounting Records for Sales

Item 7. Accounting Record of Operations, Marketing, and Sales

7.1. Accounting for Sales PGC

System of Accounting Records and Accounts to Identify PGC

  • (700) Sale of goods
  • (701) Sales of finished products (35)
  • (702) Sales of semifinished products (34)
  • (703) Sale of products and waste (36)
  • (704) Sales of container and packaging (326, 327)
  • (705) Services

Create Accounts and Subaccounts for the Registration of Sales of Goods

The PGC accepts accounts and subaccounts as may be necessary.

Example: blue pen 70001,

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Understanding Accounting Vouchers, Books, and Financial Ratios

Accounting Vouchers

Proof of Income:

These are used in transactions related to entering the company’s background.

Proof of Outflows:

These are used in transactions related to the outflows of the company.

Other Transactions:

These are used in other transactions made by the company.

The information contained in the proof is the origin for registration in the books, and they should also make accounting reports.

Books of Accounts: Purchases and Sales Assistants

These books are records of journal and subsidiary

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