 Hello in this lecture. We're going to work some smaller test type problems problems that are of the size that could fit into multiple choice questions We have here company accepts all major bank credit cards many which assess a 5% Charge on sales during the card using the card on May 26 company had 6200 credit sales what entry should company make on May 26 to record the deposit? So we're gonna make the credit sales and we're gonna have to account for the charges on those sales So first thing I would think about is cash affected and we're talking about this credit card kind of like being cashed So we're charging it on the credit card and we're thinking about how much is going to be automatically basically deposited Into our account through this credit card charging system. So in this case, we're gonna say yes cash cash is actually affected on this It's not going to go into accounts receivable in this case We're considering the point of sale basically kind of like cash as of the time that the credit card was used in this case Then we're gonna think about well, what's the credit going to be? Well, usually it's going to be if we made a sale to sales or income And so that's going to be the credit that what we'll have now We're assuming in this and it's a little difficult to tell from the wording of the problem That's one of the problems with smaller type questions. We're assuming that's this six thousand two is The credit sales basically those are the credit sales that are happening and we're gonna have to pay part of those Basically as fees for the credit card So we're gonna say that the credit card sales was a credit I'm gonna make it a negative for credit six two and then we got to figure out Well, how much cash are we gonna get after the credit card fees? So that means that if we have a six two that we are Would have received if it weren't for the fees and then we have fees of point Oh five five percent if we move the decimal two places over gonna go back on that cell home tab Numbers group and I could show decimals at point oh five or we can go to the percent here We can then underline it if we want we don't need to do this formatting of course on a quick question But it's good practice. So we're gonna say this equals the six two times five percent That means of course that we are gonna have to pay the credit card company that 310 Therefore, how much cash are we gonna get we're gonna get this six to minus the amount We're gonna have to pay the credit card company. That's what's gonna go into our account. So We can also calculate that a bit faster and it's useful to know by saying if we had the six two and We had a five percent that we're gonna have charged on that how much are we gonna get we would get one one or one hundred percent minus point oh five five percent and if we move the decimal places over home tab numbers that is 0.95 or 95% so if we're not gonna get 5% then we are gonna get 95% and that's a bit faster of a calculation And it's useful in many different areas to know that therefore. That's how much cash We're gonna get so now we know what the debit is the debit's gonna be not the six two that we made in sales It's gonna be the five eight nine zero because we're not gonna get part of that The part that we're not gonna get is going to be the difference between these two this minus this Three ten or as we already calculated this three ten here and we need a debit to make this work So I'm gonna put in the three ten right there therefore the debits now at six two equal the credits at six two and Then we got to kind of make up an account as to what we're gonna put this to and we could just call it credit card fees or something like that and It's an expense So whatever that whatever we decide to name that expense something credit card fees or something that's related to the charges, of course of the credit card and Of course I built this journal entry which in the method that makes most sense to me I mean and I started with cash and then I thought about the next thing that happens And then I put in the plug down here the three ten which we could also calculate it with our plug formula negative sum of These two mean and that's what we need For the debits equal to credits but to format it properly in terms of the journal entry We could put the debits on top So just remember that you'll probably see it in the answer key, of course Like this it wouldn't make any difference if you put the journal entry into a system Most systems in a different way and whatever the audit trail helps you to put it in the system I would put it in that way But in order to put the debits and credits on top you basically would want to see it like this next one says that Company uses the allowance method to account for uncollectable accounts It's year-in unadjusted trial balance shows accounts receivable of one forty two five hundred allowance for doubtful accounts One thousand forty five and sales and that's a credit It could possibly be a debit depending if we over under applied and sales of one million one fifteen thousand if clung Uncollectable accounts were established to be nine point nine percent of sales What is the amount of bad debt expense adjusted? So in order to set this up we could do this pretty quickly by what it's going to be is it's going to be the sales Times this point nine percent. Why did they give us all this other information in that case? So I mean we could calculate this is going to be sales as one one one five Times the nine percent. We'll just say point and remember that's if we move the decimal two places over it's point zero zero nine So if we go to the home tab and we increase decimals it's point zero zero nine or in terms of percent Nine percent which we have to add decimals again nine percent so I'm going to underline that and Let's go ahead and calculate that this equals the one million one fifteen thousand times the nine percent and That's the amount that we would put into the allowance now Let's think through this because there's two methods to do this We did this on the sales method Which we would just have to do this calculation and then create the journal entry Which would be a credit to the allowance and a debit to bad debt expense at that time But let's think through the the information we have because the other side of this the other way they could have asked this Was to make this calculation based on the receivable which in my experience is actually more common That's what I've seen more often. So those are the two ways we can ask it So if we think about that the t account for accounts receivable I'm going to go ahead and merge this I'm going to underline this going to make our t account here And put this on the left hand side and I'm just going to call this allowance for dalfel accounts So that's the allowance for dalfel accounts. I'm going to merge that I'm going to underline that I'm going to make a line on the left hand side of that And then the the accounts receivable here is at 142 5 At the debit and the allowance they say as a credit it could be a debit and if it was basically um Kind of overdrawn last in the last period meaning if we had more actual Uncollectible debt than we estimated but we have a credit I'm going to represent it with a with a negative 1045 That means the net amount that we believe we're going to get is this plus this Now why why do we need this information when we we already figured out the answer and calculated this without this information? Well, they're kind of saying if you were to do it the other way to figure out Based on receivables rather than based on sales What amount should be uncollectible? Which is quite common Then you'd have to figure out what's already in the allowance for dalfel accounts amount and then adjust it to Whatever you think it should be So that's why this this becomes relevant. So be careful of that Those two methods on the allowance method next one says that a company borrowed 13 000 by signing a 180 day promissory note At 10 percent the total interest due at maturity is what we're going to assume a 360 days a year Okay, so To in order to do this we've got to basically calculate what the interest will be So obviously we're going to have the amount we borrowed the principal And that's going to be the 13 000 and then we're going to multiply that times the rate The rates this is how I would do it obviously and then we're going to say point one And I'm going to go to the home tab. I'm going to go to the number group and make that 10 percent or point 10 And then make it a percent or 10 percent However, we like to see it then we'll then underline that and the key point here is this would be interest For a year So that's the key point that people have to kind of get in their head this times this 10 percent If we had this loan out for a year We would be paying 1300 And that's just the standard way we talk about interest whenever we say interest and we don't basically Say any time period if we don't say interest per month or interest per day will be this It it basically means interest per year Just like if we said something like, you know, that person earns 100 000 We would kind of assume it means a year in that case. We'd have to make some assumption So that's basically what we're going to assume. So that means that it hasn't been for a year It's only been for 180 days. How do we account for that? Well If we're talking about days, we can break down instead of majoring in terms of years We can measure in terms of days so we can divide by Days in a year, which you're probably thinking is 365 But uh, the reason they're trying to use 360 here is because it makes it a simplified calculation meaning What does 360 mean? It's it's going to be 12 Times 30 just if all months had 30 days just to estimate. That's why we get a nice round 360 so that would that would mean the Interest per day would be the interest per year divided by the number of days in the year nice Even number of days 360 I'm going to go ahead and underline this And see if there's any decimals on that and notice there are and so that's not a Round that number continues so note that when we do it in excel if we use this number It'll calculate this number what it actually is even though we only see 3.61 It's actually going to calculate based on 3.61 111 So then if we take that and how many days we're actually in the loan 180 days So if we charge 3.61 111 times The number of days 180 we get the 650 so i'm going to go ahead and underline this and that is our answer So note that the ratio That we could use if you're looking at a book what they will say most of time They won't do it long hand like this as much they'll say 1 3 0 0 times the ratio of 180 over The 360 And that that almost that always used to kind of confuse me a little bit more to see it that way until you know I got more comfortable with that. It's it's more comfortable for me To to multiply it out this way and say okay I got it times for a year and then I need to make it per day Remember that that could be rounded me and you could be off by some some pennies and whatnot And then multiple that times the number of days and that makes the most sense to me