Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

TIPS ON CHAPTER TOPICS

TIP: Trade accounts receivable result from the sale of products or services to customers. Non-trade accounts receivable (amounts that are due from nontrade customers who do not buy goods or services in the normal course of the company's main business activity) should be listed separately on the balance sheet from the trade accounts receivable balance.

TIP: Notice how the subjects of this chapter affect the balance sheet and the income statement. The balance of the Accounts Receivable account and its contra account—Allowance for Doubtful Accounts—are reported in the current asset section of the balance sheet. The balance of Notes Receivable (assuming the notes are due within one year of the balance sheet date) is also classified in the current asset section of the balance sheet. The balance of Bad Debt Expense is usually reported in the operating expense section of the multiple-step income statement.

TIP: Assets such as current receivables and inventories should never be reported at more than their net (cash) realizable value. Thus, if some uncollectible accounts are expected, receivables are reduced by these uncollectible amounts when presented on the balance sheet.

TIP: The carrying value (or book value or carrying amount) of accounts receivable is equal to the balance of the Accounts Receivable account less the balance of the related valuation account (Allowance for Doubtful Accounts). The carrying value of accounts receivable is also referred to as