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Financial
AccountingRobertLibby,PatriciaA.Libby,DanielG.Short,GeorgeKanaan,MaureenGowingSecond
CANADIAN
editionFinancial
AccountinChapter7ReportingandInterpreting
SalesRevenue,Receivables,
andCashChapter7ReportingandInterprAccountingforSalesRevenueTherevenueprinciple
requiresthatrevenuesberecordedwhenearned:Anexchangehastakenplace.Collectionisprobable.Theearningsprocessisnearlycomplete.AccountingforSalesRevenueThReportingNetSalesCompaniesrecordsalesdiscounts,salesreturnsandallowances,andcreditcarddiscountsseparatelytoallowmanagementtomonitorthesetransactions.ReportingNetSalesCompaniesCreditCardSalestoConsumersCompaniesaccept
creditcards
forseveralreasons:Toincreasesales.Toavoidprovidingcreditdirectlytocustomers.Toavoidlossesduetobadcheques.Toreceivepaymentquicker.CreditCardSalestoConsumersWhencreditcardsalesaremade,thecompanymustpay
thecreditcardcompanyafee
fortheserviceitprovides.CreditCardSalestoConsumersWhencreditcardsalesareCreditCardSalestoConsumersOnJanuary2,astorehadcreditcardsalesof$3,000.Thecreditcardcompanychargesa3%servicefee.Preparethejournalentrytorecordthesesales.CreditCardSalestoConsumersCreditCardSalestoConsumersOnJanuary2,astorehadcreditcardsalesof$3,000.Thecreditcardcompanychargesa3%servicefee.Preparethejournalentrytorecordthesesales.CreditCardDiscountsarereported
asacontra-revenueaccount.CreditCardSalestoConsumersSalestoBusinessesonAccountWhencompaniesallowcustomerstopurchasemerchandiseonan
openaccount,thecustomerpromisestopaythecompanyinthefutureforthepurchase.SalestoBusinessesonAccount2/10,n/30Whencustomerspurchaseonopenaccount,theymaybeoffereda
salesdiscounttoencourageearlypayment.Readas:“Twoten,netthirty”SalestoBusinessesonAccount2/10,n/30Whencustomerspur2/10,n/30PercentageofDiscountNumberofDaysDiscountIsAvailableOtherwise,theFullAmountIsDueNumberofDaysWhentheFullAmountIsDueSalestoBusinessesonAccount2/10,n/30PercentageofDiscouOnJanuary6,Gildansold$1,000ofmerchandiseoncredit
withtermsof2/10,n/30.Preparethejournalentrytorecordthesale.SalestoBusinessesonAccountOnJanuary6,Gildansold$1,0OnJanuary6,Gildansold$1,000ofmerchandiseoncredit
withtermsof2/10,n/30.Preparethejournalentrytorecordthesale.SalestoBusinessesonAccountOnJanuary6,Gildansold$1,0OnJanuary14,GildanreceivestheappropriatepaymentfromthecustomerfortheJanuary6sale.Preparetherequiredjournalentry.SalestoBusinessesonAccountOnJanuary14,Gildanreceives$1,000×2%=$20salesdiscount$1,000-$20=$980cashreceiptOnJanuary14,GildanreceivestheappropriatepaymentfromthecustomerfortheJanuary6sale.Preparetherequiredjournalentry.SalestoBusinessesonAccountContra-revenueaccount$1,000×2%=$20salesdiIfthecustomerremitstheappropriateamountonJanuary20insteadofJanuary14,whatentrywouldGildanrecord?SalestoBusinessesonAccountIfthecustomerremitstheappSincethecustomerpaidafterthediscountperiod,asalesdiscountisnotgranted.SalestoBusinessesonAccountIfthecustomerremitstheappropriateamountonJanuary20insteadofJanuary14,whatentrywouldGildanrecord?SincethecustomerpaidafterSalesReturnsandAllowancesDebitedfordamagedmerchandise.Debitedforreturnedmerchandise.Contrarevenueaccount.SalesReturnsandAllowancesDeSalesReturnsandAllowancesOnJuly8,TheT-ShirtStorereturns$500ofshirtsoriginallypurchasedonaccountfromGildan.Preparetherequiredjournalentry.SalesReturnsandAllowancesOnSalesReturnsandAllowancesOnJuly8,TheT-ShirtStorereturns$500ofshirtsoriginallypurchasedonaccountfromGildan.Preparetherequiredjournalentry.SalesReturnsandAllowancesOnGrossProfitPercentageIn2004,Gildanreportedgrossprofitof$154,671,718onsalesof$533,367,537.GrossProfit
PercentageGrossProfit
NetSales=Allotherthingsequal,ahighergrossprofitresultsinhighernetincome.GrossProfitPercentageIn2004GrossProfitPercentageGrossProfit
Percentage$154,671,718$533,367,537==29.0%GrossProfit
PercentageGrossProfit
NetSales=Allotherthingsequal,ahighergrossprofitresultsinhighernetincome.GrossProfitPercentageGrossPMeasuringandReportingReceivablesAmountsowedbyothercompaniesorpersonsforcash,goods,orservices.Openaccountsowedtothebusinessbytradecustomers.AccountsReceivableMeasuringandReportingReceiv$1,200Montreal,QuebecJanuary5,2006SixtydaysafterdateIpromisetopaytotheorderof
FirstCanadianBankOnethousandtwohundredDollarsPayableatFirstCityBankValuereceivedwithinterestat
perannumNo.DueGildanActivewear10242March6,200612%PatRogersMeasuringandReportingReceivablesDueDateMakerInterestRatePrincipalTermPayee$1,200Montreal,QuebecJanuaryAccountingforBadDebtsBaddebts
resultfromcreditcustomerswhowillnotpaythebusinesstheamounttheyowe,regardlessofcollectionefforts.AccountingforBadDebtsBaddAccountingforBadDebtsMatchingPrincipleBadDebtExpenseSalesRevenueRecordinsameaccountingperiod.AccountingforBadDebtsMatchiAccountingforBadDebtsMostbusinessesrecordan
estimate
ofthe
baddebtexpense
byanadjustingentryattheendoftheaccountingperiod.AccountingforBadDebtsMostbRecordingBadDebtExpenseEstimatesAssumeGildanestimatedbaddebtexpensefor2005tobe$2,383,000.Preparetheadjustingentry.RecordingBadDebtExpenseEstRecordingBadDebtExpenseEstimatesBadDebtExpense
isnormallyclassifiedasasellingexpenseandisclosedatyear-end.AssumeGildanestimatedbaddebtexpensefor2005tobe$2,383,000.Preparetheadjustingentry.Contra-assetaccountRecordingBadDebtExpenseEstAllowanceforDoubtfulAccountsAmountthebusiness
expectstocollect.BalanceSheetDisclosureAllowanceforDoubtfulAccountWritingOffUncollectibleAccountsWhenitisclearthataspecific
customer’saccountreceivablewillbeuncollectible,theamountshouldbe
removed
fromtheAccountsReceivableaccountandchargedtotheAllowanceforDoubtfulAccounts.WritingOffUncollectibleAccoWritingOffUncollectibleAccountsAssumeonMay6,Gildanwroteoffa
specificaccountreceivablewith
abalanceof$2,500.Preparetherequiredjournalentry.WritingOffUncollectibleAccoWritingOffUncollectibleAccountsAssumeonMay6,Gildanwroteoffa
specificaccountreceivablewith
abalanceof$2,500.Preparetherequiredjournalentry.WritingOffUncollectibleAccoWritingOffUncollectibleAccountsAssumethatbeforethewrite-offentry,Gildan’sAccountsReceivablebalancewas$81,000,000andtheAllowanceforDoubtfulAccountsbalancewas$2,000,000.Let’sseewhateffectthewrite-offhadontheseaccounts.WritingOffUncollectibleAccoWritingOffUncollectibleAccountsNoticethatthewrite-offdidnotchangethenetrealizablevaluenordiditaffectanyincomestatementaccounts.WritingOffUncollectibleAccoMethodsforEstimatingBadDebtsPercentageofcreditsalesorAgingofaccountsreceivableMethodsforEstimatingBadDebPercentageofCreditSalesBaddebtpercentageisbasedonactualuncollectibleaccountsfromprioryears’creditsales.Thefocusisondeterminingtheamounttorecordontheincomestatementas
BadDebtExpense.PercentageofCreditSalesBadPercentageofCreditSalesPercentageofCreditSalesPercentageofCreditSalesIn2005,Kid’sClotheshadcreditsalesof$60,000.Pastexperienceindicatesthatbaddebtsare
onepercentofsales.Whatistheestimateofbaddebtsexpensefor2005?PercentageofCreditSalesIn2PercentageofCreditSalesIn2005,Kid’sClotheshadcreditsalesof$60,000.Pastexperienceindicatesthatbaddebtsare
onepercentofsales.Whatistheestimateofbaddebtsexpensefor2005?$60,000×.01=$600Now,preparetheadjustingentry.PercentageofCreditSalesIn2PercentageofCreditSalesPercentageofCreditSalesNowlet’sdiscussanothermethodthatisusedtoaccountforuncollectibleaccounts.Nowlet’sdiscussanothermethAgingofAccountsReceivableThefocusisondetermining
thedesiredbalanceinthe
AllowanceforDoubtfulAccounts
onthebalancesheet.AgingofAccountsReceivableThAgingofAccountsReceivableAgingofAccountsReceivableAgingScheduleEachcustomer’saccountisagedbybreakingdownthebalancebyshowingtheage(innumberofdays)ofeachpartofthebalance.AnagingofaccountsreceivableforKid’sClothesin2005mightlooklikethis...AgingScheduleEachcustomer’sAgingScheduleBasedonpastexperience,thebusinessestimatesthepercentageofuncollectibleaccountsineachtimecategory.AgingScheduleBasedonpastexAgingScheduleThesepercentagesarethenmultipliedbytheappropriatecolumntotals.AgingScheduleThesepercentageAgingScheduleThecolumntotalsarethenaddedtoarriveatthetotalestimateofuncollectibleaccountsof$1,201.AgingScheduleThecolumntotalAgingofAccountsReceivableRecordtheDec.31,2005adjustingentryassumingthattheAllowanceforDoubtfulAccountscurrentlyhasa$50creditbalance.AgingofAccountsReceivableReAgingofAccountsReceivableAfterposting,theAllowanceaccountwouldlooklikethis...AgingofAccountsReceivableAfAgingofAccountsReceivableAllowanceforDoubtfulAccountsNoticethatthebalanceafteradjustmentisequaltotheestimateof$1,201basedontheaginganalysisperformedearlier.AgingofAccountsReceivableAlReceivableTurnoverThisratiomeasureshowquicklyacompany
collectsitsaccountsreceivable.Gildanreported2004netsalesof$533,367.Thereceivableswere$64,260atSeptember29,2003(beg.ofyear)and$85,317atOctober5,2004(endofyear).
(Allamountsinthousands.)NetSalesAverageNetTradeReceivablesReceivableTurnover=ReceivableTurnoverThisratioReceivableTurnoverNetSalesAverageNetTradeReceivablesReceivableTurnover=$533,367($64,260+$85,317)÷2=7.13timesReceivableTurnover=Thisratiomeasureshowquicklyacompany
collectsitsaccountsreceivable.ReceivableTurnoverFocusonCashFlowsSalesRevenueAddDecreaseinAccountsReceivableSubtractIncreaseinAccountsReceivableCashCollectedfromCustomersFocusonCashFlowsSalesAddDInternalControlsInternalControls
aretheprocessesbywhichthecompany’sboardofdirectors,management,andotherpersonnelprovidereasonableassuranceregardingthereliabilityofthecompany’sfinancialreporting,theeffectivenessandefficiencyofitsoperations,anditscompliancewithapplicablelawsandregulations.InternalControlsInternalContControlsOverAccountsReceivableToguardagainsttheextendingcredittonon-worthycustomers,thefollowingpracticescanhelpminimizebaddebts:Requireapprovalofcustomer’scredithistorybyapersonindependentofthesalesandcollectionfunctions.Monitortheageofaccountsreceivableperiodicallyandcontactcustomerswithoverduepayments.Rewardbothsalesandcollectionpersonnelforspeedycollectionssothattheyworkasateam.ControlsOverAccountsReceivaNowlet’sstartourdiscussionofcash.Nowlet’sstartourdiscussionCashandCashEquivalentsCashandCashEquivalentsChequesMoneyOrdersBankDraftsCertificatesofDepositT-BillsCashandCashEquivalentsCashInternalControlofCashCash
perlyaccountforassets.safeguardassets.ensuretheaccuracyoffinancialrecords.Internalcontrolreferstopoliciesandproceduresthataredesignedto:InternalControlofCashCashiInternalControlofCashSeparation
ofDutiesCustodyRecordingAuthorizationInternalControlofCashSeparaInternalControlofCashDailyDepositsPurchaseApprovalPrenumberedChequesPaymentApprovalCashControls
VerifySignaturesBankReconciliationsInternalControlofCashDailyBankReconciliationProvidesinformationforreconcilingjournalentries.Explainsthedifferencebetweencashreportedonbankstatementandcashbalanceoncompany’sbooks.BankReconciliationProvidesinBankReconciliationBalanceperBank+DepositsinTransit-OutstandingCheques±BankErrors=AdjustedBalanceBalanceperBook+DepositsbyBank(creditmemos)-ServiceCharge-NSFCheques±BookErrors=AdjustedBalanceBankReconciliationBalanceBankReconciliationBalanceperBook+DepositsbyBank(creditmemos)-ServiceCharge-NSFCheques±BookErrors=AdjustedBalanceBalanceperBank+DepositsinTransit-OutstandingCheques±BankErrors=AdjustedBalanceAllreconcilingitemsonthebooksiderequireanadjustingentrytothecashaccount.BankReconciliationBalanceBankReconciliationPrepareaJuly31bankreconciliationstatementandtheresultingjournalentriesfortheSimmonsCompany.TheJuly31bankstatementindicatedacashbalanceof$9,610,whilethecashledgeraccountonthatdateshowsabalanceof$7,430.Additionalinformationnecessaryforthereconciliationisshownonthenextpage.BankReconciliationPrepareaJBankReconciliationOutstandingchequestotaled$2,417.A$500chequemailedtothebankfordeposithadnotreachedthebankatthestatementdate.Thebankreturnedacustomer’sNSFchequefor$225receivedaspaymentofanaccountreceivable.Thebankstatementshowed$30interestearnedonthebankbalanceforthemonthofJuly.Cheque781forsuppliesclearedthebankfor$268butwaserroneouslyrecordedinourbooksas$240.A$486depositbyAcmeCompanywaserroneouslycreditedtoouraccountbythebank.BankReconciliationOutstandingBankReconciliationBankReconciliationBankReconciliationBankReconciliationBankReconciliationBankReconciliationEndofChapter7EndofChapter7Financial
AccountingRobertLibby,PatriciaA.Libby,DanielG.Short,GeorgeKanaan,MaureenGowingSecond
CANADIAN
editionFinancial
AccountinChapter7ReportingandInterpreting
SalesRevenue,Receivables,
andCashChapter7ReportingandInterprAccountingforSalesRevenueTherevenueprinciple
requiresthatrevenuesberecordedwhenearned:Anexchangehastakenplace.Collectionisprobable.Theearningsprocessisnearlycomplete.AccountingforSalesRevenueThReportingNetSalesCompaniesrecordsalesdiscounts,salesreturnsandallowances,andcreditcarddiscountsseparatelytoallowmanagementtomonitorthesetransactions.ReportingNetSalesCompaniesCreditCardSalestoConsumersCompaniesaccept
creditcards
forseveralreasons:Toincreasesales.Toavoidprovidingcreditdirectlytocustomers.Toavoidlossesduetobadcheques.Toreceivepaymentquicker.CreditCardSalestoConsumersWhencreditcardsalesaremade,thecompanymustpay
thecreditcardcompanyafee
fortheserviceitprovides.CreditCardSalestoConsumersWhencreditcardsalesareCreditCardSalestoConsumersOnJanuary2,astorehadcreditcardsalesof$3,000.Thecreditcardcompanychargesa3%servicefee.Preparethejournalentrytorecordthesesales.CreditCardSalestoConsumersCreditCardSalestoConsumersOnJanuary2,astorehadcreditcardsalesof$3,000.Thecreditcardcompanychargesa3%servicefee.Preparethejournalentrytorecordthesesales.CreditCardDiscountsarereported
asacontra-revenueaccount.CreditCardSalestoConsumersSalestoBusinessesonAccountWhencompaniesallowcustomerstopurchasemerchandiseonan
openaccount,thecustomerpromisestopaythecompanyinthefutureforthepurchase.SalestoBusinessesonAccount2/10,n/30Whencustomerspurchaseonopenaccount,theymaybeoffereda
salesdiscounttoencourageearlypayment.Readas:“Twoten,netthirty”SalestoBusinessesonAccount2/10,n/30Whencustomerspur2/10,n/30PercentageofDiscountNumberofDaysDiscountIsAvailableOtherwise,theFullAmountIsDueNumberofDaysWhentheFullAmountIsDueSalestoBusinessesonAccount2/10,n/30PercentageofDiscouOnJanuary6,Gildansold$1,000ofmerchandiseoncredit
withtermsof2/10,n/30.Preparethejournalentrytorecordthesale.SalestoBusinessesonAccountOnJanuary6,Gildansold$1,0OnJanuary6,Gildansold$1,000ofmerchandiseoncredit
withtermsof2/10,n/30.Preparethejournalentrytorecordthesale.SalestoBusinessesonAccountOnJanuary6,Gildansold$1,0OnJanuary14,GildanreceivestheappropriatepaymentfromthecustomerfortheJanuary6sale.Preparetherequiredjournalentry.SalestoBusinessesonAccountOnJanuary14,Gildanreceives$1,000×2%=$20salesdiscount$1,000-$20=$980cashreceiptOnJanuary14,GildanreceivestheappropriatepaymentfromthecustomerfortheJanuary6sale.Preparetherequiredjournalentry.SalestoBusinessesonAccountContra-revenueaccount$1,000×2%=$20salesdiIfthecustomerremitstheappropriateamountonJanuary20insteadofJanuary14,whatentrywouldGildanrecord?SalestoBusinessesonAccountIfthecustomerremitstheappSincethecustomerpaidafterthediscountperiod,asalesdiscountisnotgranted.SalestoBusinessesonAccountIfthecustomerremitstheappropriateamountonJanuary20insteadofJanuary14,whatentrywouldGildanrecord?SincethecustomerpaidafterSalesReturnsandAllowancesDebitedfordamagedmerchandise.Debitedforreturnedmerchandise.Contrarevenueaccount.SalesReturnsandAllowancesDeSalesReturnsandAllowancesOnJuly8,TheT-ShirtStorereturns$500ofshirtsoriginallypurchasedonaccountfromGildan.Preparetherequiredjournalentry.SalesReturnsandAllowancesOnSalesReturnsandAllowancesOnJuly8,TheT-ShirtStorereturns$500ofshirtsoriginallypurchasedonaccountfromGildan.Preparetherequiredjournalentry.SalesReturnsandAllowancesOnGrossProfitPercentageIn2004,Gildanreportedgrossprofitof$154,671,718onsalesof$533,367,537.GrossProfit
PercentageGrossProfit
NetSales=Allotherthingsequal,ahighergrossprofitresultsinhighernetincome.GrossProfitPercentageIn2004GrossProfitPercentageGrossProfit
Percentage$154,671,718$533,367,537==29.0%GrossProfit
PercentageGrossProfit
NetSales=Allotherthingsequal,ahighergrossprofitresultsinhighernetincome.GrossProfitPercentageGrossPMeasuringandReportingReceivablesAmountsowedbyothercompaniesorpersonsforcash,goods,orservices.Openaccountsowedtothebusinessbytradecustomers.AccountsReceivableMeasuringandReportingReceiv$1,200Montreal,QuebecJanuary5,2006SixtydaysafterdateIpromisetopaytotheorderof
FirstCanadianBankOnethousandtwohundredDollarsPayableatFirstCityBankValuereceivedwithinterestat
perannumNo.DueGildanActivewear10242March6,200612%PatRogersMeasuringandReportingReceivablesDueDateMakerInterestRatePrincipalTermPayee$1,200Montreal,QuebecJanuaryAccountingforBadDebtsBaddebts
resultfromcreditcustomerswhowillnotpaythebusinesstheamounttheyowe,regardlessofcollectionefforts.AccountingforBadDebtsBaddAccountingforBadDebtsMatchingPrincipleBadDebtExpenseSalesRevenueRecordinsameaccountingperiod.AccountingforBadDebtsMatchiAccountingforBadDebtsMostbusinessesrecordan
estimate
ofthe
baddebtexpense
byanadjustingentryattheendoftheaccountingperiod.AccountingforBadDebtsMostbRecordingBadDebtExpenseEstimatesAssumeGildanestimatedbaddebtexpensefor2005tobe$2,383,000.Preparetheadjustingentry.RecordingBadDebtExpenseEstRecordingBadDebtExpenseEstimatesBadDebtExpense
isnormallyclassifiedasasellingexpenseandisclosedatyear-end.AssumeGildanestimatedbaddebtexpensefor2005tobe$2,383,000.Preparetheadjustingentry.Contra-assetaccountRecordingBadDebtExpenseEstAllowanceforDoubtfulAccountsAmountthebusiness
expectstocollect.BalanceSheetDisclosureAllowanceforDoubtfulAccountWritingOffUncollectibleAccountsWhenitisclearthataspecific
customer’saccountreceivablewillbeuncollectible,theamountshouldbe
removed
fromtheAccountsReceivableaccountandchargedtotheAllowanceforDoubtfulAccounts.WritingOffUncollectibleAccoWritingOffUncollectibleAccountsAssumeonMay6,Gildanwroteoffa
specificaccountreceivablewith
abalanceof$2,500.Preparetherequiredjournalentry.WritingOffUncollectibleAccoWritingOffUncollectibleAccountsAssumeonMay6,Gildanwroteoffa
specificaccountreceivablewith
abalanceof$2,500.Preparetherequiredjournalentry.WritingOffUncollectibleAccoWritingOffUncollectibleAccountsAssumethatbeforethewrite-offentry,Gildan’sAccountsReceivablebalancewas$81,000,000andtheAllowanceforDoubtfulAccountsbalancewas$2,000,000.Let’sseewhateffectthewrite-offhadontheseaccounts.WritingOffUncollectibleAccoWritingOffUncollectibleAccountsNoticethatthewrite-offdidnotchangethenetrealizablevaluenordiditaffectanyincomestatementaccounts.WritingOffUncollectibleAccoMethodsforEstimatingBadDebtsPercentageofcreditsalesorAgingofaccountsreceivableMethodsforEstimatingBadDebPercentageofCreditSalesBaddebtpercentageisbasedonactualuncollectibleaccountsfromprioryears’creditsales.Thefocusisondeterminingtheamounttorecordontheincomestatementas
BadDebtExpense.PercentageofCreditSalesBadPercentageofCreditSalesPercentageofCreditSalesPercentageofCreditSalesIn2005,Kid’sClotheshadcreditsalesof$60,000.Pastexperienceindicatesthatbaddebtsare
onepercentofsales.Whatistheestimateofbaddebtsexpensefor2005?PercentageofCreditSalesIn2PercentageofCreditSalesIn2005,Kid’sClotheshadcreditsalesof$60,000.Pastexperienceindicatesthatbaddebtsare
onepercentofsales.Whatistheestimateofbaddebtsexpensefor2005?$60,000×.01=$600Now,preparetheadjustingentry.PercentageofCreditSalesIn2PercentageofCreditSalesPercentageofCreditSalesNowlet’sdiscussanothermethodthatisusedtoaccountforuncollectibleaccounts.Nowlet’sdiscussanothermethAgingofAccountsReceivableThefocusisondetermining
thedesiredbalanceinthe
AllowanceforDoubtfulAccounts
onthebalancesheet.AgingofAccountsReceivableThAgingofAccountsReceivableAgingofAccountsReceivableAgingScheduleEachcustomer’saccountisagedbybreakingdownthebalancebyshowingtheage(innumberofdays)ofeachpartofthebalance.AnagingofaccountsreceivableforKid’sClothesin2005mightlooklikethis...AgingScheduleEachcustomer’sAgingScheduleBasedonpastexperience,thebusinessestimatesthepercentageofuncollectibleaccountsineachtimecategory.AgingScheduleBasedonpastexAgingScheduleThesepercentagesarethenmultipliedbytheappropriatecolumntotals.AgingScheduleThesepercentageAgingScheduleThecolumntotalsarethenaddedtoarriveatthetotalestimateofuncollectibleaccountsof$1,201.AgingScheduleThecolumntotalAgingofAccountsReceivableRecordtheDec.31,2005adjustingentryassumingthattheAllowanceforDoubtfulAccountscurrentlyhasa$50creditbalance.AgingofAccountsReceivableReAgingofAccountsReceivableAfterposting,theAllowanceaccountwouldlooklikethis...AgingofAccountsReceivableAfAgingofAccountsReceivableAllowanceforDoubtfulAccountsNoticethatthebalanceafteradjustmentisequaltotheestimateof$1,201basedontheaginganalysisperformedearlier.AgingofAccountsReceivableAlReceivableTurnoverThisratiomeasureshowquicklyacompany
collectsitsaccountsreceivable.Gildanreported2004netsalesof$533,367.Thereceivableswere$64,260atSeptember29,2003(beg.ofyear)and$85,317atOctober5,2004(endofyear).
(Allamountsinthousands.)NetSalesAverageNetTradeReceivablesReceivableTurnover=ReceivableTurnoverThisratioReceivableTurnoverNetSalesAverageNetTradeReceivablesReceivableTurnover=$533,367($64,260+$85,317)÷2=7.13timesReceivableTurnover=Thisratiomeasureshowquicklyacompany
collectsitsaccountsreceivable.ReceivableTurnoverFocusonCashFlowsSalesRevenueAddDecreaseinAccountsReceivableSubtractIncreaseinAccountsReceivableCashCollectedfromCustomersFocusonCashFlowsSalesAddDInternalControlsInternalControls
aretheprocessesbywhichthecompany’sboardofdirectors,management,andotherpersonnelprovidereasonableassuranceregardingthereliabilityofthecompany’sfinancialreporting,theeffectivenessandefficiencyofitsoperations,anditscompliancewithapplicablelawsandregulations.InternalControlsInternalContControlsOverAccountsReceivableToguardagainsttheextendingcredittonon-worthycustomers,thefollowingpracticescanhelpminimizebaddebts:Requireapprovalofcustomer’scredithistorybyapersonindependentofthesalesandcollectionfunctions.Monitortheageofaccountsrec
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