Note Receivable Example

 

In this presentation we will discuss notes receivable, giving some examples of journal entries related to notes receivable and a trial balance so we can see the effect and impact on the accounts as well as the effect on net income of these transactions. first transaction, we’re gonna have 120 day 7% note giving the company EMI and extension on past due AR or accounts receivable of 6200. When considering book problems and real life problems, one of our challenges is to interpret what is actually happening what is going on, which party are we in this transaction in? Therefore, how are we going to record this transaction when we’re looking at notes receivable? A common problem with notes receivable is the conversion of an accounts receivable to a notes receivable. So in this case, that’s what we have. We have an accounts receivable here that includes an amount of Due to us by this particular company in AI so these are our books, we have a receivable people owing us money for prior transactions goods or services provided in the past and they owe us in total, all customers owe us 41,521 this customer in particular owes us 6200 of this amount in the receivable that could be found not in the general ledger which would give backup of transactions by date.

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Receivables Introduction

In this presentation we will take a look at receivables. The major two types of receivables and the ones we will be concentrating on here are accounts receivable and notes receivable. There are other types of receivables we may see on the financial statements or trial balance or Chart of Accounts, including receivables, such as rent receivable, and interest receivable. Anything that has a receivable, it basically means that someone owes us something in the future. We’re going to start off talking about accounts receivable that’s going to be the most common most familiar most used type of receivable and that means something someone, some person some company, some customer typically owes us money for a transaction happening in the past, typically some type of sales transaction. So if we record the sales transaction, that would typically be the way accounts receivable would start within the financial statements, meaning If we made a sale, we would credit the revenue account, we’ll call it sales. If we sell inventory, it would be called sales. If we sold something else, it might be called fees earned, or just revenue or just income, increasing income with a credit, and then the debit not going to cash. But going to accounts receivable.

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First In First Out (FIFO) Periodic System

In this presentation we will discuss first in first out or FIFO using a periodic system as compared to a perpetual system. As we go through this, we want to keep that in mind all the time that been that we are using first in first out as opposed to some other systems lastin first out, for example, or average cost, and we’re doing so using a periodic system rather than a perpetual system. Best way to demonstrate is with examples. So we’ll go through an example problem. We’re going to be using this worksheet for our example problem. It looks like an extended worksheet or large worksheet, but it really is the best worksheet to go through in order to figure out all the components of problems that deal with these cost flow assumptions, including a first in first out lastin first out, or an average method, and using a periodic or perpetual for any of them.

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Lower of Cost or Market

In this presentation we will discuss the concept of lower of cost or market. We will define this concept first and then see it and talk about how it would apply to inventory. The definition of lower of cost or market according to fundamental accounting principles, while 22nd edition is required method to report inventory at market replacement cost when that market cost is lower than recorded cost. So, what we’re saying here is we have we’re talking about the inventory, of course, and we’re saying that we have to record it at the replacement cost. When that replacement cost that market cost is lower than the recorded cost, what we actually purchased it for. So this looks like a confusing type of definition. However, it’s pretty straightforward. What we’re applying here is going to be the conservative principle meaning that if our inventory has declined in value, we have to record it at the lower cost. We don’t want to be overstating our income mentoree obviously regulations are very concerned about us overstating something, when we’re talking about an asset, and making the financial statements look better than they would rather than understating it.

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Consistency Concept

In this presentation we will discuss the consistency principle as it relates to inventory and inventory assumptions. First, we’re going to define the consistency principle and then apply it to an assumption such as the flow assumption such as do we use something like a first out last In First Out average inventory system, the definition of consistency principle according to fundamental accounting principles, while 22nd edition is a principle that prescribes use of the same accounting method methods over time so that financial statements are comparable across periods. So, here we’re considering the assumptions that we’re making with the flow of inventory those being either first in first out last in first out or the average method typically for the cost flow assumptions, because those are assumptions.

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Special Journals Subsidiary Ledgers 2

In this presentation, we’re going to talk about special journals and subsidiary ledgers. First, we’re going to list out the special journals and talk about when we would use them, why we would use them and how they fit into the accounting system. The special journals are basically going to group types of transactions. So when we think about all the transactions that happened during the month, we typically see them in order of when they happen in the accounting system, we’re going to record transactions in other words, by date as they occur. But if we are able to group those transactions into special journals that can simplify the process.

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Income Statement from Trial Balance 16

Hello in this presentation we’re going to take a look at the creation of the income statement from the trial balance. First, we want to take a look at the trial balance and consider where the income statement accounts will be. When looking at the trial balance, it will be in order we have the assets in green, the liabilities in orange, the equity in light blue, and then the income statement accounts including revenue and expenses. That’s what we are concentrating here we’re looking at those income statement accounts. And that is what will be used in order to create the financial statements to create the income statement. Note that all the blue accounts represents the equity section. So the income statement really is going to be part of total equity. If we consider that on the balance sheet, then we’re really looking at a component of this capital account.

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