Journal Entry NoteReceivable

A $6,000, 30-day, 12% note receivable is not paid by the maker at maturity. The accounting journal entry to recognize this event will:


A. Credit Interest Receivable, $60
B. Debit Accounts Receivable for $6,060
C. Debit Notes Receivable, $6,060
D Credit Notes Receivable $6,060


Correct Answer : B

Loss on Sale of Machinery Problem

When a company incurs a loss on the sale of machinery, it should be reported on the statement of cash flows as which type of activity?

A. A non-cash activity.
B. An operating activity under the direct method.
C. An adjustment to net income under the indirect method.
D. An investing activity cash outflow

Correct Answer: C

What is Cash Basis Accounting?

Cash Basis Accounting is a simple method of bookkeeping/accounting which records revenues and expenses when they are received and paid. For example, you would not use any types of accruals in Cash Basis Accounting. Practically all firms prefer accrual accounting methods over cash basis accounting methods.

Recognizing Revenues

A company can recognize revenue on it accounting books from the sale of products and services at varying points in time during a transaction. The timing of when to recognize this revenue is dependent on the accounting method used. The matching principle is applied to determine when to recognize revenue.

What is Net Working Capital?

Net Working Capital is the difference between current assets and current liabilities. Circulating capital is the flows of value within a production organization. Includes stocks of raw material, work in process, finished goods inventories, and cash on hand needed to pay workers and suppliers before products are sold.

There is not a technical difference between working capital and circulating capital, but the word circulating gives you a better feel for what happens in the cash cycle.

Accounting Example:

Net Work Capital (NWC)= Current Assets- Current Liabilities

$500= $2000-$1500.

Relevant Costs Dropping Product Line

What Costs are Relevant when Considering Dropping a Product Line?

Only costs that can be avoided as a result of the decision to drop the product line are relevant in calculating cost savings. Costs that will remain the same whether the product line is retained or discontinued are irrelevant when making this decision.

What is Business Segment?

A Business segment is part of an organization about which a manager controls and seeks revenue, cost or profit data.

Some examples of business segments include departments, operations, sales territories, divisions, and product lines.

Calculate Gross Margin Financial Ratio

Gross Margin Ratio = Gross Profit ÷ Net Sales

$100,000 ÷ $500,000

=20%

The Gross Margin Ratio displays percentage of sales dollars available to cover expenses and increase profit after the cost of merchandise is deducted from a company's sales. The gross margin ratio is often used to compare companies across similar business sectors.

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Variable Costing Financial Reporting

Variable costing is not permitted for external financial reporting purposes or tax accounting purposes. Variable Costing can only be used within a company's internal financial records.

Direct Write off Method Journal Entry

When it is determined a customer will not make payment, the journal entry is to debit bad debt expense and credit accounts receivable.

Journal Entry Direct Write off Method

Uncollectible Accounts Expense DEBIT 500

Accounts Receivable CREDIT 500


While the direct write-off method is the simplest way of calculating bad debts expense, it is only used in real life when the amount of debt is small.


Accounting Examples about Bad Debt Expense:
Percent of Accounts Receivable Method for Estimating Bad Debts Expense
Percent of Sales Method to Calculate Debt Expense