 Hello, in this lecture we're going to work some smaller test type questions, questions that are of a size that they could fit into multiple choice format. We have here a company uses the allowance method of accounting for uncollectible accounts receivable. On May 3rd, company wrote off the 4,400 uncollectible account of its customer. On July 10th, received a check for the full amount of 4,400 from that same customer. The entity or entries company makes to record the write off of the account on May 3rd. So they're asking for that first transaction, even though they told us that later on the customer came and paid it back. So what's happened in here, we had a receivable, we made a sale sometime in the past, and then we determined at this point, at May 3rd point, that this would be uncollectible. We're not going to get paid by this particular customer. What would be that journal entry at that point in time? We know that the receivable is an asset and they owe us money, and we need to make it go down because they're no longer going to pay us, therefore we're going to reduce the assets. So we're going to credit the receivable. Accounts receivable is going to be credited. I'm going to put it way out here for, I'm going to put the credits being a negative number 4400. That means we're going to debit something, and obviously if we got paid, we would debit cash, but we didn't get paid in this time. We would debit under a direct write-off method, the bad debt expense at this point, but under the allowance method, in an attempt to match the expense of the write-off at the same time period as the sales, we've already expensed it, or estimated what that expense will be in the allowance for doubtful accounts. And now that this has happened, we're going to take it out of the allowance for doubtful accounts. Allowance for doubtful accounts usually having a credit balance. We're going to reduce it now with a debit. And notice there would be no net effect on accounts receivable from this transaction. So here's the transaction to write it off. We're going to debit allowance for doubtful accounts, and we're going to credit accounts receivable. Now notice they asked us kind of the easier portion, even though they gave us all this information, which is kind of confusing us, because they asked us for the write-off, and they could have asked us, well, what would happen, what happens when the company, the customer actually comes in and pays. We thought the customer left town, I'm never going to see him again. Customer comes in and pays. What are we going to do in that case? And what we would do there is two journal entries. So if they did ask for what happened at the second point in time in July 10th, then we would have to first reverse this. We would say, okay, well, accounts receivable is back on the books, 4400, just a complete reversal of this entry. This puts them back into good standing, I'm going to put this over here. I'll just say this equals this. So that would put them back into good standing. And then we would do the normal transaction. The normal transaction being we got cash, so cash is going to go up with a debit of 4400. And we have a credit. And the credit would then, in this case, go to accounts receivable. Those would be the two journal entries. And this was always used to be really confusing to me when I first learned this, because it seems like we're doing more work than we have to do, because we're doing two journal entries and we're debiting and crediting the receivable. From just a journal entry standpoint, notice what we could do to shorten this is to just do this half. To just say, okay, the same result would be if we just took this and credited the allowance and then we debited the cash. And the debit and credit would look like that. And why won't we just do that with one journal entry instead of this business of basically debiting the receivable and then crediting the receivable? Why don't we just do what we need to do to the accounts that will actually be affected or changed in the long run? And the reason for that is basically we are reversing what happened last time so that when we see it on our subsidiary ledger, it gives us kind of an audit trail. So although in journal entry terms strictly, this would be the shortest way to do it. Most texts will have us do the reversal and then do the normal process that would happen when we receive the payment. This one says that a company has the net sales of $1,630,200 and average accounts receivable of $418,000. What is the accounts receivable turnover? So in order to do this, obviously we need to know what the accounts receivable turnover, so AR turnover is going to be net sales over, I'm going to select Alt-Enter to go over and then it's going to be the average AR, I'm just going to say average AR and then I'm going to underline that, we're going to underline that, say Enter, we go back on it and we'll center it. So there's the ratio that we need to have and they just gave us those two numbers and this is a bit more simplified than it normally is because normally obviously from financial statements we would have to figure out what the average receivable was and what we would do then is we would see what was the receivable on last period's financial statements, the end of last period being the beginning of this period and what was the receivable at this period, the end of this period on the balance sheet, the point in time which is of course as of the end of the period and then we would add those together and divide by two, kind of giving us what the receivable could have been basically any time within that time frame. So in this case it's just a $630,000 over Alt-Enter, I'm just writing it in the same format, the 418,000 and if we underline that, whoop, just the top one, I want to underline just the top one. Then it's that Enter and then we can center it and then if we of course do that calculation this equals the $1630,000 divided over the 418,000 and Enter. Remember that Excel could be rounding here so we have the ratio and we want to add decimals to home tab numbers to see if there's any more, so there it is, it's 3.9. Next one says that on July 9th, a company receives 9,100 150-day 12% note from customer as payment on account. What entry should be made on July 9th to record receipt of the note? This one's really just kind of like a terminology thing, we got to see what they actually mean by this and so what if we interpret this, we're saying okay we have an account receivable out there that this customer owes us money, they can't pay us. So what's happening is we're saying okay we will extend the date to 150 days if we make it a formal note and then charge interest on it and so that being in real life we would of course know that, we would know the situation. So in this case we're saying okay the accounts receivable, we're going to get that off the books and then put on the books the note which is going to have an interest rate unlike the accounts receivable. So the accounts receivable we're going to assume, we're going to take that off the books, accounts receivable is an asset, it has a debit balance, we're going to do the opposite thing to it which is a credit of the 9-1 and then we're going to put it back on the books but not as an accounts receivable but as a note receivable. And it's still an asset, it's basically the exact same thing except at this point the note receivable is a longer term, we're extending the terms and we're charging interest on it. Now we of course don't have to worry about the interest yet because no time has passed, as time passes we will then have interest income on the note unlike what we would have on an accounts receivable because we don't charge interest on the accounts receivable because it's usually due within like 30 days. Next one says that company A makes an 88,090 day 7% cash loan to company C, company A's entry to record the transaction. So we loaned out money I would ask always is cash affected in this case it is we loaned out the 88,000 at this point to the other company so we're gonna say cash is a debit it's gonna go down by doing the opposite thing to it which is a credit in this case I'm gonna make mine a negative for the credits and put it in the credit column and then we're going to debit something and that debit is going to be in this case we loaned the money out we are going to get it back sometime in the future so it's gonna be something like a note receivable or loan receivable and of course the difference between a note or loan is going to be and accounts receivable AR accounts receivable is that we have the interest and it's usually look for a longer period of time usually there's a formal documentation usually it's for a longer period of time and usually there is interest charged on it the thing that confuses some people when we see this is it seems like we have more information than we need in that they we have the terms of the loan and the percentage on it those of course are important to the loan to make sure it is alone and we will need to deal with those at a later point that later point being when time has passed and we have then earned the interest by loaning out the money we'll have to calculate how much interest we have earned