1. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Estimate of Uncollectible Accounts Receivable: $30,000 If the total accounts receivable balance is $200,000, the new net realizable value is $170,000 Uncollectible accounts receivable

2. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Write-Offs to the Allowance Account When a customer’s account is identified as uncollectible, it is written off against the allowance account Net realizable value No affect on net realizable value

3. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. If payment is collected after the write-off Assume a $5,000 account had been previously written off. Reinstating account balance Cash collected The write-off entry is reversed and the cash collection is recorded.

4. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Estimating Uncollectible Accounts Based on past experiences, industry averages and forecasts of the future Two common methods: _______ __ ________ _______ __ ________ _________ ___ _________

5. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Estimate Based on Percent of Sales Assume that on December 31, 2012, the Allowance for Doubtful Accounts for DPS Company has a negative balance of $3,250. In addition, DPS estimates that 3/4% of 2012 credit sales will be uncollectible. Credit sales for the year is $3,000,000. Bad debt expense

6. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Sample Aging Schedule Exhibit 2: Aging of Receivables schedule, December 31, 2012

7. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Estimate Based on Analysis of Receivables Comparing the $26,490 estimate of uncollectible account with the unadjusted balance in the allowance account, we determine the adjustment needed for bad debt expense. Assuming that the unadjusted balance in the allowance account is a negative $3,250, the amount to be added to this balance is –$23,240. Bad debt expense

8. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 5 Describe the common classifications of inventory

9. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Inventory Classification for Merchandisers In Chapter 4, we learned that merchandise on hand is called merchandise inventory. Inventory sold becomes the cost of merchandise sold Cost of inventory includes all costs of ownership (e.g., purchase price, transportation costs, insurance costs, etc.)

10. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Merchandising Inventories Exhibit 4: Size of Merchandise Inventory for Merchandising Businesses

11. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Manufacturing Inventories ____________ Inventory Raw material used to make the product ____________ Inventory Cost of partially completed products ____________ Inventory Total cost of completed goods: material, labor, manufacturing overhead

12. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Manufacturing Inventories Exhibit 5: Manufacturing inventories

13. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Footnote Disclosure of Manufacturing Inventories

14. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 6 Describe three inventory cost flow assumptions and how they impact the financial statements