沃顿商学院全套笔记-十二-
沃顿商学院全套笔记（十二）
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P159：16_应收账款19 51.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
Hello， I'm Professor Brian Boucher。 Welcome to week four of our course， Sarah Course。
This week we're going to be taking a look at a count receivable and inventory in more， detail。
This video will start with a count receivable and look at that problem that we make sales。
to customers on account， but not all of them pay us。 What do we do to count for this？ Well。
let's get to it and see what happens。
We're going to start our look at accounts receivable with a review of the revenue recognition。
criteria。 So， if you remember back in week two， we talked about how revenues recognized when it's both。
earned， we provide the goods and services， and realized， which means we get paid in cash。
or something that can be converted to a known amount of cash， which would be accounts receivable。
So the accounts receivable， as we know by now， is created when the payment is due from。
customers after the revenue recognition。
One thing that came up at the time is that some of these customers are actually not going。
to pay us。 And so what we'll talk about now is how do we account for this？
Is that a rhetorical question？ Instead of worrying about how to account for this。
we should worry about not selling to， customers that don't pay us。 Of course。
companies are going to try to avoid selling to customers that aren't going to， pay them。
But if you're going to grow the business， you have to take some chances on your credit， sales。
And until somebody figures out a foolproof method to avoid selling to customers that won't。
pay you in the future， I'm going to keep teaching you how to account for the fact that some。
of those customers will default on their obligations to you。
So there are two methods that we can use to recognize or account for these uncollectable。
accounts。
We make an sale on accounts and we don't collect from customers。
First method is called the direct write-off method， which says that you just recognize。
and expanse when you realize that you can't collect from the customer。
This is what's used for tax reporting， but it's not allowed under GAP or financial reporting。
What？ How can the accounting for tax reporting be different from the accounting for financial。
reporting？ And like， what do you mean by financial reporting？ Hmm。
Somebody's going to have to go back and review those first week of videos。
So financial reporting is what we're doing here， putting together financial statements。
for external stakeholders， investors， analysts， creditors， and so forth。
The rules for tax reporting are generally different than the rules for your financial， statements。
We're going to talk later in the course about how to account for those differences， but。
this is going to be one of many situations where what we do on the financial statements。
is going to be different from what companies have to do in their tax returns。
So the method we're going to use for financial reporting， which is required under GAP， is。
called the allowance method。 The allowance method is going to force us to recognize bad debt expense for unestimated。
future uncollectible amounts from all the sales that we made during the period。 Before you go on。
may you please explain why we have to estimate future uncollectible accounts。
during the same period as the sales？ Best way to think about this is the matching principle。
So a cost of doing business is period， a cost of generating revenue of shipping goods to。
customers is that some of them are not going to pay us in the future。
So we want to estimate those expected losses now to match them to the revenue that we're。
booking this period。 So the bad debt expense is a cost of generating revenue this period。
Another way to think about this is when we look at revenue minus expenses， that profit。
should equal the cash that we're going to collect either now or in the future。
And by recognizing that bad debt expense， we reduce the revenue to the amount of cash that。
we eventually expect to collect from the customers on those sales。
In addition to recognizing an expense on the income statement， we're going to create。
an allowance for doubtful accounts to offset accounts receivable on the balance sheet。
Allowance for doubtful accounts is going to be a contra asset。
So it's going to work just like accumulated depreciation where we're going to use it to。
keep track of expected reductions in accounts receivable。
And I'm going to go through examples on this in a little bit。
But what that means is what you'll see on the balance sheet is net accounts receivable。
which is going to equal gross accounts receivable。
The amount of receivables you originally booked when you made the sales minus this allowance。
for doubtful accounts。 And this is completely analogous to net property plant equipment equals property plant equipment。
at its original cost minus accumulated depreciation。
Basically， accountants have like four or five tricks and we use them over and over and over。
again。 So contra asset is one of these tricks that we use over and over again。
So let's go through an example of how this works。 So BOC makes $10 in sales on account to each of three customers。
Jordan， Dakota and。
Peyton。
Not that it really matters for the example， but just so I can get a mental picture， are， Jordan。
Dakota and Peyton， guys or gals？ They can be whatever gender you want them to be。
One of the things that professors often do in coming up with example names is to try。
to find unisex names that could be either men or women。 In the old days we would have done Chris。
Pat and Tracy。 But nowadays if you go to a playground and you hear Jordan， Dakota or Peyton， you're。
just as likely to see a little boy or a little girl come running up。
Of course I do realize what I need to work on are internationally neutral names so that。
you're not necessarily picturing little Americans as you are with these names。
The way these transactions will look on our balance sheet equation is we'll have $30 of。
accounts receivable and $30 of sales revenue。
So we've got the asset and the stockholders' equity account。 But then we need a second ledger。
a subsidiary ledger called the accounts receivable ledger。
where we need to keep track of accounts receivable for each and every customer so that we can。
know what a customer owes us and then record it when they pay us back。
So what we actually see on the balance sheet is this total accounts receivable account。
But actually companies are keeping track of little accounts receivable accounts for every。
customer。 So we've got Jordan， Dakota and Peyton each have accounts receivable of $10 which add。
up to the $30 that you would see on the balance sheet。
Now we're not going to forget about journal entries as we go through this new material。
We're always going to go back to how things are going to be represented in journal entries。
and in T accounts。 So at the time of sale you would debit accounts receivable to increase the asset。
credit。
the sales revenue for $30 or if you did it for each individual customer it would be three。
entries with debits and credits of $10 each。
Then we're going to look at the accounts receivable related T accounts。
So we're going to track the actual accounts receivable account。
This contra asset allows for doubtful accounts because its contra asset notice the beginning。
balance is going to go on the credit side。
We'll have a T account for sales revenue and an account for bad debt expense。
Why is the allowance called doubtful accounts while the expense is called bad debts？
And like you called them in collectible amounts before。 Dude what is the correct jargon？
Yeah thank you for asking that。 I'm purposefully using three different names because this is an item where companies use。
a lot of different names to represent it。 You'll hear bad debts， doubtful accounts。
uncollectible accounts。 In fact you often never hear bad debt expense because that sounds really bad。
Instead it's called provision for doubtful accounts or provision for uncollectible accounts。
which sounds much more pleasant。 Although provision means the exact same thing as an expense。
And the way this first entry will affect our T accounts is the credit sales will increase。
accounts receivable and increase sales revenue on the debit side for accounts receivable。
on the credit side for sales revenue。
Moving on with the example at the end of the period it's time to put together financial。
statements and BOC has to estimate what amount of the sales made during the period will not。
be collected。 Their estimate is ten dollars。
Now later on we will talk about how you estimate this amount but for now let's just assume this。
is our best estimate。 So what's going to happen is we're going to make an adjusting entry where we create an。
allowance for doubtful accounts of ten and we recognize an expensive ten called bad debt。
expense。 So what this is going to do is it's going to reduce our accounts receivable on the balance。
sheet to twenty。
Net accounts receivable is going to be accounts receivable minus the allowance。
And what shows up in the income statement is thirty of revenue minus ten of bad debt expense。
So a net of twenty that we would net of twenty profit on this which is what we expect to。
actually collect from customers。 In terms of accounts receivable ledger we don't do anything because we don't know which。
of these three people is not going to pay us。
And this is the whole reason for creating the allowance account is if we were going to。
reduce accounts receivable directly we would also have to reduce one of the individual accounts。
to get it to balance in our accounts receivable ledger but we can't do that because we don't。
know which of the three are going to not pay us so we store the expected losses in this。
allowance account until we really find out who's the debt beat。
I mean who's the one that doesn't end up paying us。
So the journal entry is we debit bad debt expense so that expense is going the income。
statement of ten and we credit this contract asset allowance for doubtful accounts。
Credit increases the contract asset and it's going to reduce total assets when we put together。
the balance sheet。 Adjusting entries are the ones that the accountant does on New Year's Eve。
correct？ Why do we not simply do the bad debt entry each time we make a sale？
Now you do realize I was joking about accountants staying on New Year's Eve to do adjusting。
in journal entries。 They actually have two to four weeks after the end of the period to do their adjusting。
entries， I mean the accountants are probably the first ones out the door on New Year's， Eve day。
But anyway we do this as an adjusting entry because we only have to get this right when。
we put together financial statements。 So we go ahead and wait till the end of the period and then estimate either bad debt expense。
or the allowance based on sales or receivables for the period。
In the next video we're going to look at the different methods for estimating this and then。
you'll see why it makes sense to do this as an adjusting entry。
Anyway this will map into our T accounts by increasing the allowance for doubtful accounts。
So there's the credit entry for bad debt expense and then there's a debit entry to increase。
our bad debt expense。
Continuing on with the example in the next period BOC collects the cash from Jordan and。
Peyton。 So we end up increasing cash that each bonus 10 we increase cash by 20 and we reduce the。
accounts receivable。 In the AR ledger what we're going to do is get rid of Jordan's accounts so have a credit。
to 10 so now the balance is zero。 Get rid of Peyton's accounts so credit at 10 now it has a balance of zero and that adds。
up to the credit of 20 overall for our accounts receivable。
Obviously we don't do anything for Dakota because we're still waiting to collect from， Dakota。
Journal entry here is one you should be familiar with we collect cash， cash goes up through。
a debit and we credit accounts receivable we reduce the asset through a credit both for。
20。
And then in our T accounts the cash collections will show up on the credit to accounts receivable。
and I had to slip in in the bottom a cash T account to show the other side the debit， side。
I don't have this up here because eventually we're going to use these T accounts to solve。
for missing items and so we really need to focus on the core for as opposed to do the。
cash but I want you to see both the debit and the credit。
Anyway continuing on with the example after 90 days BOC gives up on collecting from Dakota。
and decides to write off the receivable。 So what's going to happen here is first of all we're writing off the accounts receivable。
we're saying Dakota is not going to pay us we reduce the accounts receivable with a credit。
or a negative so we reduce accounts receivable by 10 and we also get rid of the allowance。
for doubtful accounts。
It's no longer an allowance for doubtful accounts it is the doubtful account so we've been storing。
up this 10 waiting to see who didn't pay us now that we know it's Dakota we can get rid。
of this allowance we basically use it up。
Now that we know Dakota is not going to pay us why don't we have to erase the revenue。
from the sale to him or her。 That's a good question we don't erase the revenue at this point we essentially zeroed。
out that revenue when we recognized bad debt expense because the bad debt expense was reducing。
the revenue to get to a profit number which reflected what we actually expected to collect。
in other words anticipating the write off of the uncollectable which turned out to be， Dakota。
If we reduced revenue again when the write off happened we'd essentially be deducting。
from revenue twice。 So once we do the bad debt expense during the period of sale we're taking care of the。
future write offs you don't need to do anything else in terms of revenue or expense when the。
actual write off happens。
And then if we look at our accounts receivable ledger we're going to zero out Dakota's account。
not because Dakota paid us but because we've given up on Dakota paying us so we reduced。
the accounts receivable to Dakota from Dakota to zero we reduced total accounts receivable。
and now everything is zeroed out。
Final entry is we debit allowance for doubtful accounts by ten that reduces the contract。
asset and we credit accounts receivable for ten so here's we're actually writing off。
writing down the balance in accounts receivable。
In our tea accounts the write offs will be something that reduces accounts receivable through。
a credit and reduces the allowance for doubtful accounts through a debit。
So if we look at our final totals we got twenty dollars of cash and twenty dollars of pre-tax。
income。 The accounts receivable we created thirty but then we either collect a cash or wrote。
them off。 We created the allowance for doubtful accounts but then when we found out who didn't pay。
us we zeroed that out we have twenty or thirty of revenue ten of expenses for twenty。
of pre-tax income so in the end the amount of pre-tax income we get matches the cash。
we actually collect。 In our accounts receivable ledger everything is zeroed out at this point either people。
have paid us cash or we've written off the account。
And so if this is all that happens you could go ahead and put an ending balance for accounts。
receivable ending balance for a allowance for doubtful accounts。
One more thing that would come in with a sales account is that there's cash sales in addition。
to credit sales。
Once you have those in there we have the income statement amount and then the bad debt。
and that expenses the only thing that's going to hit this accounts and that will show up。
on the income statement。 What shall we do if Dakota pays us now？
Do we refuse to accept her or his payment because we have written off the receivable？
No I would actually take the cash from Dakota if she's going to pay us even though it makes。
the accounting a little trickier。 So let's look at what you would do if you recover an account that you would originally。
written off。 So let's take a look at what happens if Dakota later pays us。
So after the write off Dakota wins the lottery and one of the first things that she or he。
does is decide to pay us the ten dollars that he or she owes us。
So this would be an unexpected recovery what we're going to do is first increase accounts。
receivable so basically restore Dakota's accounts receivable credit allowance for doubtful。
accounts basically restore the allowance because we set that aside thinking somebody wouldn't。
pay us。 Initially we thought it was Dakota。 Turns out not to be Dakota so we need to put the allowance back for someone else that might。
not pay us。
Wait this journal entry has created a balance in the allowance account but like we do not。
have any more receivables outstanding。 Yeah the problem with this example is we only made three sales and we were done。
In practice we would be making new sales all the time new credit sales we would need new。
allowance for those credit sales and by putting this allowance back we're just saying we initially。
thought it was Dakota but she paid us back。 There's someone else that we've made it sale to subsequently that's not going to pay us。
and this allowance will help offset that。 Anyway once we've restored the accounts receivable then we credit it to eliminate it and we collect。
the cash debit the cash。 So we essentially have to recreate the accounts receivable so that we can collect on it and。
then recreate the allowance so that it can be used to another customer that ends up not。
paying us。
So we've got one more element really in our T accounts which is we may have recoveries。
Recoveries would increase accounts receivable and increase the allowance for doubtful accounts。
and then of course we would record the cash collection in this case where that would reduce。
accounts receivable and increase our cash。 So hopefully that this example gives you a sense for how all these different activities。
related to estimating and recognizing bad debts flow through the journal entries and。
T accounts and the thing we won't need to work on next is estimating the dollar amount。
for the uncollectible accounts。
I keep ending my voice over PowerPoint narration saying the exact thing that I intend to say。
in the wrap up video。 I need to stop that。 So at the risk of repeating myself what we will do next video is see how we estimate this。
number for bad debt expense each period。 I'll see you then。 See you next video。 Bye。 。 [ Silence ]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P16：15_有关客户本位的问题.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
[MUSIC]。
As we wrap up our discussion about what customer centricity is。
I just want to offer a few more reflections or questions associated with customer centricity。
For instance， a really big one is who is the customer？ Again。
is it the end consumer who's buying and using the product？ If you think about many situations。
it's not so clear。 I work with a lot of pharmaceutical firms。 When I ask people at those firms。
who is the customer？ I'll often get four different answers。 Is it the patient？ Is it the physician？
Is it the hospital or the medical practice？ Is it the insurance company？
You can make an argument that each one of them is the customer。
and depending on who you talk to at the pharmaceutical firm。
you'll get a very strong argument one way or another。
So one of the important steps on the road to customer centricity。
is getting some agreement on that question。 Agreeing that one of these entities is the customer。
We care a lot about the others。 We need to keep them in mind as we go through our planning practices。
But one kind of customer matters more than others。
Going back to the Procter and Gamble example I mentioned before。
there's a tremendous amount of clarity on it。 Procter and Gamble knows that today their customer is the retailer。
I wouldn't be surprised if 20 years from now， Procter and Gamble said。
"The customer is the consumer。"， But they're moving in an orderly way。
So it's important to first sit down and figure out who the customer could be。
who are all the different constituents who could qualify as being the customer。
and then having a healthy discussion to try to come up with the consensus。
about which one we're going to focus on， and which other ones might still be on our horizon。
We also want to think about what are the barriers associated with customer centricity。
A few of them I've mentioned already， it might be the data。
Perhaps we can't get the data to be able to track individual customers doing things over time。
There might be regulatory issues。 There might be reasons why we can't treat customers differently。
for instance， in the pharmaceutical space。 There might be cultural reasons。
It's just impossible for this company to move from a product centric to a customer centric view。
If the company has been focused on developing and distributing blockbusters。
for all of its existence， it's hard all of a sudden to pivot around the customers。
So there's a number of barriers that can be in place。
The ones that I just mentioned are fairly general， they're fairly broad。
but every company is going to have its own challenges。
Before saying we're going to become customer centric， it's very important to come up with that list。
and think real carefully about existing barriers and new ones that can be arising。
So to do a real careful inventory of barriers towards customer centricity。 And of course。
at the same time， you want to think about the resources that you can bring in。
to address or maybe preempt some of those barriers。
Very often the resources are going to be financial， we're going to have to invest money。
to build the information technology systems and to hire employees。
and to start developing a data infrastructure。 Sometimes they're going to be cultural。
we're going to have to hire the right kind of people。
who can think around conversion thinking around the customer instead of divergent thinking around the product。
So there's a number of different ways that we can start thinking in advance。
about overcoming the barriers before the barriers actually start impeding our progress。
Another important consideration is competition。 It's interesting that in some cases。
seeing your competitors taking moves towards customer centricity。
is a very strong incentive for you to do so。 So for instance。
we see a number of industries where customer centricity has really made great strides。
such as financial services such as hotels and hospitality， where it's competitive pressures。 Hey。
they're moving towards customer centricity， we should be doing it too。 But in many cases。
the best motivations to move towards customer centricity， it's the entire opposite of that。 Hey。
no one's doing it， let's be the first。 That would be the example of Harris and Tesco。
Sometimes being the only one doing the customer centric thing is the way to make it most successful。
So again， you want to think about the ecosystem for your industry。
and is it better for everybody to be customer centric？ Is it better for it to be only you？
And that might drive your decision。 In the end， the big question is。
do you want to be customer centric or not？ Does it make sense for your company？ And if not now。
when should you be customer centric？ I think about， again， a company like Procter & Gamble。
Walmart and so on， making plans now for changes that they can make in a few years。
And as you decide whether to be customer centric， the timing about it。
you want to start laying some of the baby steps towards it。
So it might be developing technology initiatives like the Scan & Go program that I mentioned for Walmart。
It might be an organizational initiative like MyBlackIsBeautiful for Procter & Gamble。
It might be other kinds of experiments that a company is going to run。
They're going to set aside a part of the organization or a group of customers。
And just treat them differently and see if we can and see if it's more profitable than handling them。
in the usual product centric manner。 Those are the kinds of decisions I want to see companies making。
And I think it's very important for all companies to at least be thinking about it。
so they can make an informed decision about what customer centricity might mean for them。 [Music]。
[BLANK_AUDIO]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P160：17_估计坏账损失15 31.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
Hello， I'm Professor Brian Buchay and welcome back。 In this video。
we'll talk about the different methods that companies use to try to estimate。
that number for expected bad debts during a period。
We'll also talk a little bit about how accounts receivable shows up on the statement of cash。
flows and methods that companies use to try to collect their accounts receivable more， quickly。
Let's get to it。 So we have two methods that are commonly used to try to calculate the amount of uncollectible。
accounts。 Accounting is almost like Noah's Ark。 There seems to be two of everything。
Anyway， the first method is called the percent of sales method。
This estimates bad debt expense directly。
So what we're going to do is look at our sales for the period， or if we have it， the。
credit sales。 Apply those sales times the percent that we expect to be uncollectible。
So of those sales， what percentage do we estimate that are going to be not collected。
in cash， that will be our bad debt expense。 Then we'll use our T accounts to solve for the ending balance of the allowance for doubtful。
accounts。
The other method is a balance sheet approach where you estimate the ending balance of allowance。
for doubtful accounts directly。 What we're going to do here is multiply balance sheet accounts receivable amounts at the。
end of the year by estimated uncollectable percentages。
So the percent of accounts receivable we expect not to collect in cash。
But it's called aging because we're going to do it based on how long the accounts receivable。
have been outstanding。
So there'll be different percentages for those that are under 30 days， those that are， 30 to 60。
60 to 90， and so forth。
That's going to give us the ending balance of allowance for doubtful accounts。
Then we'll plug in our T accounts to solve for bad debt expense。
Are you just teaching us two methods so that you will have more questions to ask on the， exam？
Which method do companies use in the real world？ Yes， if you're a conspiracy theorist。
you could assume that if there are multiple methods。
it's because accounting professors want more material that they can ask you about on an， exam。
And the real world companies could do either method or they could do both methods and take。
an average of the two。 The key point is that if you're going to estimate bad debt。
you either do it based on your credit， sales or you do it based on receivables outstanding at the end of the year or you do。
some combination of those two。 Either way， you need to come up with some estimate for the expected bad debts。
the expected， uncollectable receivables during the period。
So let's do an example where we implement both methods。
So we're going to look at our old example company BOC and we're going to assume that。
during the period that credit sales of 75，000， so that when a new account's receivable and。
into sales revenue， we'll assume that they collected cash on those receivables of 69，500。
The debit here is to a cash T account which is not on the screen。
And we'll assume that write-offs were 500 during the period。
So now that we have all this stuff filled in， the only thing that's missing is the bad debt。
expense and the ending balance and allowance for doubtful accounts will calculate one and。
plug the other。 First we'll do the percent of sales method。
So BOC， as we just saw， had credit sales of 75，000 during the quarter。
They estimate that 2% of those credit sales will be uncollectable。
They'll never get the cash。 So bad debt expense is going to be credit sales times that estimated uncollectable percentage。
75，000 times 2%， or $1，500 for the quarter。
This method looks easy-peasy， however， how shall we determine the estimated uncollectable。
percentage？ You're correct。 The formula is easy-peasy。
All the difficulty here is coming up with that percentage。
So companies are supposed to both look historically。
So what's been their recent experience with defaults？ What is the industry。
recent industry experience with defaults？ And look ahead。
So if you think the economy is moving into a recession， you'd want to make this rate higher。
If the economy seems to be moving into boob times， you'd want to make it lower。
And essentially you're going to adjust this rate as you go based on things that have just。
happened and new information about the future。 There's a lot more art than science that goes into coming up with this percentage。
Now that we have bad debt expense， we can figure out the allowance for doubtful accounts。
So we put the bad debt expense in the allowance for doubtful accounts to your account。
If we add the beginning balance plus bad debt expense， subtract the write-offs， we come up。
with the ending balance of allowance for doubtful accounts of $2，100。
Now we're going to look at the aging of accounts receivable method where we calculate that。
ending balance directly and then go back and plug bad debt expense。
So let's say BOC is $15，000 of accounts receivable at the end of the quarter。
I mean， we don't have to say that we can actually go back to the T account and see the ending。
balance is $15，000。 BOC groups the accounts receivable by age。
How long it's been since the sale was made。
They estimate an uncollectable percentage for each age group and compute a necessary allowance。
for each age group。
And then they add all that up to get the ending balance for doubtful accounts。
So it looks like something like this。
So if you look at the breakdown of BOC's receivables， you see that they have $8，000 of receivables。
that are 0 to 30 days old。 $4，000 of receivables that are 31 to 60 days old。
$2，000 of receivables that are 61 to 90 days old。
And $1，000 of receivables that are over 90 days old。
So we've been waiting over 90 days to collect the cash。
For each category， we come up with an estimated uncollectable percentage。
And this is why you want to do it with the aging method because obviously the new ones。
there's going to be a much higher percent you expect to collect than the ones that have。
been outstanding over 90 days where maybe you're going to get only half of those。
So we've got an estimated uncollectable percentage that gets bigger the longer the receivables。
been outstanding。 We take the accounts you will balance for each age group times the uncollectable percentage。
for each age group to get an allowance amount for each age group， add it up and come up with。
an ending balance of allowance for doubtful accounts of $1，900。
This looks like a lot of math。 How do you come up with all of those percentages？
The same way that you come up with the percentages for the first method， you go based on past。
experience and any information you have about the future。 And in fact。
one of the reasons companies could use to decide which method to use is。
where do they think they can be more accurate at estimating these percentages of uncollectables。
Is it the percent of credit sales that will be uncollectable or is it the percent of each。
age of receivables that will be uncollectable？ Based on your experience in coming up with these rates。
that would determine which method， might be better to use。
So we can plug the ending balance of allowance for doubtful accounts in the T account。
Now the only thing missing in the allowance for doubtful accounts T account is bad debt。
expense and so we can figure out what that is， so what number plus 1100 minus 500 gives。
you 1900？ It would be 1300， so that's the amount for bad debt expense that we have in allowance。
for doubtful accounts and that's the amount of bad debt expense that we're going to show。
on the income statement。 Whoa。 These methods gave us different answers for bad debt expense。
How can that be？ Bad debts are bad debts。 Should we rejig or the percentages to get the same answer？
Yes， bad debts are bad debts， but unfortunately they're all going to happen in the future and。
so they're uncertain。 They can't be known with 100% accuracy。
We got 1500 as our estimate on the first method， 1300 under this method， which one's more correct？
Who knows？ Nobody knows what the future holds。 We could split the difference and go with 1400 or if we're more confident in our estimate。
of the percentage of uncollectibles for one or the other method， we could use that method。
The fact of the matter is whatever we estimate is probably going to be wrong anyway and what。
we'll do is every period we will update our estimate based on our experience， we'll learn。
from our mistakes and try to get better and better every period in estimating these bad， debts。
So anyway， that ends our discussion of computing the bad debt expense and the allowance for。
doubtful accounts。 A couple other topics related to cash flow that I want to make sure I talk about。
Next is how accounts receivable and these allowances and bad debts show up on the statement。
of cash flows。 So obviously cash collections of accounts receivable are going to be operating cash。
flows， but the bad debt expense， the write offs， any recoveries are non-cash transactions。
So there's two methods for treating bad debt expense under the indirect method that you。
see when you look at financial statements。
First method would be to add back bad debt expense， net of any write offs from recovery。
So basically take all of those non-cash transactions in net income and add back the net number。
Then add or subtract the change in gross accounts receivable。
the original amounts account receivable。
looked。 So the way it would look is you'd start with net income， you would add back the net bad。
debt expense， so net of recoveries and write offs， and then you'd either add or subtract。
the change in gross accounts receivable， obviously using the balance sheet equation where gross。
account accounts receivable went up， you'd subtract it， if gross accounts receivable went。
down you would add it。 The other method is just take net accounts receivable。
So accounts receivable， net of all the non-cash amounts， just add or subtract the change in。
that。 So there you would have net income and then all you would do is add or subtract the change。
in net accounts receivable because that change already incorporates all the non-cash。
stuff or they adjust for it。
And so it should get you to the same place whether you break this out separately or combine。
it all into one net number。 Dude， this is so uncool。 Two methods again。
How can anyone like figure this stuff out if you cannot like agree on any methods？ Hey。
at least there's not ten methods to do it。 So what's going to determine which method you use here is basically how important or。
how big the bad debt expense is。 If bad debt expense is a big number for a company。
it's probably going to do method， one so that investors and analysts can prominently see how big the bad debt expense is。
If it's really not a big deal， if it's such a small number， then the company might go。
with method two because it's just not that big of a deal。
We basically give companies two methods so they can choose the one that best communicates。
their business。 So although it makes your life more difficult。
hopefully we're making things easier for companies。
and for investors and analysts that need to know this information。 Okay。
one more sort of big topic I want to talk about before we look at an example of。
an accounts receivable disclosure。 And that is the different methods that companies use to collect cash in their accounts receivable。
more quickly。 So one method that companies use are pledging their accounts receivable。
So instead of waiting until the customers pay you， you could go out and borrow money using。
the accounts receivable as collateral。
What that would mean is as long as you paid back the loan， then you would obviously keep。
the accounts receivable and collect them in the normal course of business。
But if you didn't pay back your loan， the financial institution could seize those accounts。
receivable and then collect them and keep the cash。
But in this case， the firm keeps the accounts receivable and still has to collect them， still。
has to take the risk in order to pay back the loan。
To reduce that risk， some companies use what is called factoring， where you just basically。
sell the accounts receivable to a financial institution at some discount that reflects both。
an interest charge and the risk of uncollectability。
So let's say you have a million dollars accounts receivable， you might have to wait 30 to 90。
days to collect that cash。
Instead， maybe you can sell that million dollars accounts receivable to a bank for 950，000。
You get your cash right away。
You don't have to worry about collecting them or not。 And the bank pays you $50。
000 less than the million because they're building in an interest。
charge and also they're recognizing the fact that some percent of those are going to be。
uncollectable。
And obviously if they were longer term receivables or there was a higher risk of not collecting。
them， the discount would get bigger。 And the last thing that companies do is securitization。
So they sell their accounts receivable to a separate legal entity called a variable。
interest entity that's created for the sole purpose of securitizing the receivables。
And the VIE borrows money from investors and uses the proceeds to buy the accounts receivable。
from its parent。 So basically instead of just borrowing from a financial institution。
you borrow from anyone。
in the investing public that wants to buy a share of those securitized receivables。
Excuse me， but what the lamb are you talking about？
What does any of this have to do with the price of fish？ Did you say what the lamb？
Is that some kind of New Zealand expression that I've never heard of？ Anyway。
I realize that this is beyond the scope of what we can talk about here。
I teach securitization in my second year elective。 It's incredibly complicated。
I think I had to teach it for about six years before I fully understood it。
But it's also very important because I would argue that securitization was the big thing。
that drove the financial crisis of 2007， 2008， 2009。 So anyway， for now。
I just want you to know that there are these ways that companies have。
to get receivables off of their balance sheet， collect the cash earlier。
factoring and securitization， are two big ones。 And maybe if I ever get around to doing my second year elective at Warden as a Coursera。
course， then you can watch 17 hours of video as I talk about securitization and excruciating。
detail。 Did I just offer to do another Coursera course？ I need to go back and edit that out。
So this wraps up our look at all the different topics I want to talk about with accounts receivable。
In the next video， we're going to look at an example of a disclosure that you would see。
about a company's accounts receivable and see what kind of information we can learn from。
that disclosure。 I'll see you then。 See you next video。 Bye。 ‑‑。 [ Silence ]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P161：18_应收账款披露示例16 35.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
Hello and Professor Brian Bache。 Welcome back。 One more video looking at accounts receivable。
Here we're going to look at where we would pull information out of financial statement。
disclosures in order to calculate some key information that's not otherwise disclosed。
So let's get to work。 For example of an accounts receivable disclosure we're going to look at TK Incorporated which。
sells coin wrappers to the banking industry。
In case you're wondering this is not a real company。
What I decided to do for this class was disguise all of the companies， change the names， make。
up different businesses just so they don't get in trouble for calling out a company on。
these videos。 So anyway TK Incorporated is selling coin wrappers to the banking industry。
There's sales for the year end of December 31， 2008 where 149 to 270 that's in 1000 so。
that's 149 million。
We're going to use excerpts from the balance sheet and statement of cash flows to answer。
the following questions。
First what were write offs of accounts receivable in 2008？
What were cash collections from customers in 2008？
Both of those things are handy to know but you often can't find them very easily in the。
disclosure so we're going to actually calculate them using the other information that we're。
going to do in the last segment。 And then the last question is by how much did it change in the estimated uncollectable。
percentage affect their bad debt expense in 2008？
Here's the operating section of the statement of cash flows for TK Incorporated and you can。
see three years 2008， 2007， 2006， net income and cash from operations both dropped substantially。
in 2008。
Wow， it looks like all TK had an awful year in 2008。 Weren't banks buying coin wrappers that year？
Yeah， it does look like old TK did have a bad year in 2008 and I'm pretty sure that most。
banks weren't using their government bailout money that year to buy new coin wrappers which。
is why TK was struggling so much。 One quick thing I want to point out on the statement of cash flows before we move on。
is the big negative number for accounts receivable in 2008 which is one of the big reasons they。
had negative cash flows。
Basically TK was making sales。 Most of these sales were on account。
They weren't collecting all of the cash。 Their accounts receivable is growing and that's like a use of cash。
Basically you're booking the sales revenue but you're not getting the cash。
Big upward trend in how much receivables have been growing over these three years。
Here is the current asset section of the balance sheet for TK incorporated and of course。
the thing we're focusing on here is accounts receivable。
So the disclosure you see here is net of allowances and it gives you the two allowance。
numbers 1021 in 2008 and 220 in 2007 and as you can see the allowance for doubtful accounts。
went up substantially in 2008。 So the first question we're going to answer is what we're right offs of accounts receivable。
in 2008。
So what we're going to do over here on the right is bring in our accounts， allowance。
for doubtful accounts， T account， contra assets so it has a balance on the credit side。
The beginning balance is 220 which is what the allowance was at the beginning of 2008。
Ending balance is 1021 which is what the allowance was at the end of 2008。
Right now we have two unknowns we don't know write offs and we don't know bad debt expense。
If we can find bad debt expense then we can calculate write offs。
If we bring back that statement of cash flows one of the light items on the statement of。
cash flows was provisioned for doubtful accounts。 It's a non-cash expense so it reduces net income and then we add it back on the cash flow statement。
in this case so that we can see it was 1558。
So we can fill in that 1558 on the credit side this is what increases allowance for doubtful。
accounts。 There's only one thing missing and that's write offs。
So what we can do is plug and calculate what the write offs were。
So if we take 220 plus 1558 minus the ending balance of 1021 we come up with write offs。
had to have been 757。 I believe you mistaken if there were any recoveries you would need to also include them in the。
T account。 These write ups are really write ups net of recoveries。
Good catch we would also have recoveries flowing through this T account so if there were any。
recoveries of prior write offs then really what we're calculating here is write offs net。
of recoveries。 Good job。
So we're going to calculate what were cash collections from customers in 2008。
So I've got the accounts receivable T account over here on the right and when we first introduced。
the disclosure example I said that sales for the year were 149 to 70。
Of course we could have found that from the income statement I didn't need to give it to。
you but it was easier to just give you the number than to show you the income statement。
So we fill the sales in on the debit side because of course sales increase accounts receivable。
Next thing we need to figure out is the beginning balance of accounts receivable。
Now it's not the 7826 that you see on the balance sheet for 2007 because that's net of。
allowances。 So to get the beginning balance in gross accounts receivable we need to add 7826 plus the allowance。
of 220 to get 8046 which is the beginning balance。
Need to do the same thing for the ending balance the 12， 930 that you see on the balance sheet。
is the net amount we need to add the allowance of 10， 21 to get 13， 951 which will be our。
ending balance in gross accounts receivable。
And last we also know what the write offs of accounts receivable were because we calculated。
that on the last slide。 So write offs of accounts receivable were 757。
Once we plug that in on the credit side all that's missing is the cash collections from。
customers。 And so it's just a matter of figuring out what the plug is that makes us balanced。
So if we take 8046 the beginning balance plus sales minus write offs of 757 minus the ending。
balance of 13， 951 we end up with collections of 142，608。
Now notice the difference between the sales and the collections is 6，662 where we've seen。
that number before is that was the change in receivables on the cash flow statement。
So that's 6， 662 was the increase in gross receivable the sales minus the collection。
That seems like a lot of work to get cash collections。
Don't companies just disclose this number somewhere in the financial statements。 Actually no。
most companies don't explicitly disclose the amount of cash collected from。
customers and the only way to figure that out is to work through the T accounts fill in what。
you know and then plug for what's missing which will probably be cash collection customers。
Pardon me。 Before you go on， maybe please explain why you can use total sales and not credit sales。
to do this calculation。 Yeah dude you had like credit sales in the RT account in an earlier slide。
Okay I'm going to do a quick digression to show you that total sales is actually the。
number that will get us what we need in this case。 So let's go to the digression。
This is the mega slide that we had a couple videos ago where we showed how all the transactions。
flow through accounts receivable allowance sales and bad debt and yes within sales we。
did have credit and cash sales separate。 So let's look at an example。
Just get rid of the allowance from the bad debt and just focus on collecting cash on。
receivables and let's just make it easy say write-offs and recoveries are zero so we won't。
even worry about those。 They could be non-zero and we would get the same results。
I guess you could check that later if you wanted to。
We're going to add a beginning and ending balance of 100 for the beginning balance， 200 for。
the ending balance。 We're going to say cash sales are 500 and credit sales are going to be 1000。
So total sales are 1500。
Well now that we've assumed write-offs and recoveries are zero the only thing missing。
in the accounts receivable to account is cash collections on accounts receivable which。
is going to be 900。 So 100 plus 1000 minus the ending balance of 200 gives us cash collections of 900。
So how much cash should we collect from customers in total？
We got 900 collecting on accounts receivable。
500 as cash sales a total of $1400 cash collection from customers。
Now here's the problem when you look at financial statements。
Financial statements don't give you cash collection from customers and they don't give you cash。
sales。
So there's no way that we could actually do this from a financial statement because there's。
no disclosure of cash versus credit sales but it doesn't matter。
We can do it with just sales。
So now let's redo the example， start with the same beginning and ending balance， write-offs。
and recoveries are zero and we're just going to use total sales this time。
So carrying on the example total sales were 1500 before remember they were 1000 credit。
and 500 cash for a total of 1500。 We plugged that 1500 total sales into the accounts receivable to account on the debit。
side。
Now we can solve for cash collections。 100 plus 1500 is 1600 minus the ending balance of 200 gives us cash collections of 1400 which。
is identical to what we had before。
So essentially what happens in this case is any cash sales show up on the debit side of。
accounts receivable and then they're also going to show up on the credit side as a cash。
collection。
So by using total sales in the accounts receivable to account we're going to naturally get cash。
collections due to cash sales plus cash collections due to the collections on accounts receivable。
from the credit sales。 So it actually becomes easier when you go to financial statements you can plug in total。
sales and then you get total cash collected from customers。
Okay， now let's get back to the disclosure example。
Last thing we're going to do with the disclosure is to uncover the effect of the change in。
bad debt expense due to a change in the estimated percent on collectible。
So to do this first we're going to compute the percent of gross accounts receivable that。
are expected to be uncollectible in the prior year。
So we take the net accounts receivable on the balance sheet， add back the allowance to。
get the gross。
We did that a couple slides ago。 Then we take the allowance divided by the gross to get the percent uncollectible。
Now before the virtual students even ask the question I know this wasn't one of the two。
methods we learned。 One of the methods we learned were the percent of sales method but to figure out that percentage。
we need credit sales we learned the aging of accounts receivable method to that we needed。
to know a breakdown of receivables by age。
As users of financial statements we often don't have those pieces of information。
So as a quick and dirty approach to get the percent uncollectible I like to take the allowance。
divided by the gross accounts receivable。 So for instance at the end of 2008 we have 13。
951 of gross accounts receivable。
What percent of those do we expect not to collect？ 7。3% or 1021。
Now what we're going to do is apply the percentage from the prior year 2。7% to the current year。
balance in gross accounts receivable to get the expected balance。
So this calculation basically says let's say that TK did not increase their percent from。
2。7 to 7。3 but instead kept it at 2。7。
If they had their allowance would be 2。7% of 13，951 or 3。77。
So that's the expected allowance if they kept last year's rate。
Then as a final step we just take the difference between those two and it tells us how much。
bad debt expense increased solely due to increasing the percent of uncollectibles。
So by increasing our assumption of uncollectible percent from 2。7 to 7。3 it added 644 to the。
bad debt expense。 Now notice the allowance total went up by 800 so a lot of the increase in the allowance。
was not due to the growth and accounts receivable but rather due to this increased assumption。
for the percent of uncollectibles。 Not only math， dude but when would we like ever have to do this calculation？
If I was concerned that a company was manipulating its earnings to try to meet an analyst forecast。
or some kind of earnings target this would be one of the first things I would look at。
because if this change percentage went the other way if it went down what that would。
do is it would reduce bad debt expense and increase net income。
So I always tend to look at this if I'm concerned about earnings management。
And I think what I'll do is let's look at how a rate decrease would affect bad debt。
expense by calculating 2007。
So let's quickly run this back the other way what if we were trying to figure out how 2007。
was affected by having what may have been an abnormally low expected percent of uncollectible。
So maybe what happened is TK should have increased their percent sooner but kept it。
lower just to try to avoid signaling the bad news。
So what we could do here is we could calculate what the allowance would have been at 7。3%。
so we take 7。3% times 8。046 and we come up with 5。87 and then what we can see in the。
last step is that basically by using the lower rate of 2。7% TK was able to record 376，000。
of less bad debt expense。 So if you believe a company is artificially keeping its bad debt expense or keeping its。
percent of uncollectible too low to try to keep its bad debt expense lower and maybe。
increase its net income。 We can sort of estimate what that effect might have been here and by not increasing their。
percent of uncollectibles from 2。7 to 7。3 a year earlier it saved them expenses of 367。
Now of course it could also be that the economy changed between the two years so this always。
isn't going to be a definite indicator of manipulation but it's a piece of information。
to have。 And if you think the economy in the banking industry the demand for coin wrappers was。
bad in 2007 then maybe the 2。7 was artificially low。
So anyway you can always back out this percent of uncollectibles and try to redo what the。
bad debt expense would have been had they not changed their assumption for the percent。
of uncollectibles and that's going to wrap up or look at what we can pull out of an accounts。
receivable disclosure。 And that wraps up or look at what we can pull out of an accounts receivable disclosure。
I just said that did not。 Anyway this is the last video on accounts receivable。
Join me next video as we start our dive into inventory。 I'll see you then。 See you next video。 Bye。
Bye。 [ Silence ]。
