Professional Documents
Culture Documents
Receivables
Receivables
Learning
Objective 1
3-1
accounting
for uncollectible
Describe
nature
of the
2 Describe thethe
receivables.
adjusting
process.
Describe the direct write-off method of
92
9-2
Receivables (continued)
93
1
Describe the common
classes of receivables.
99-4
4
9-7
2
Describe the accounting
for uncollectible
receivables.
99-9
9
2
Factoring
3
Describe the direct writeoff method of accounting
for uncollectible
receivables.
9-13
9-13
9-14
Reinstatement Entry
Receipt of Cash
Entry
9-15
3
Example Exercise 9-1
Direct Write-off Method
Journalize the following transactions using the
direct write-off method of accounting for
uncollectible receivables.
July 9 Received $1,200 from Jay Burke and
wrote off the remainder owed of $3,900 as
uncollectible.
Oct. 11 Reinstated the account of Jay Burke and
received $3,900 cash in full payment.
9-16
9-16
1,200
3,900
5,100
3,900
3,900
3,900
3,900
4
Describe the allowance
method of accounting for
uncollectible receivables.
9-18
9-18
4
On December 31, ExTone Company estimates
that a total of $30,000 of the $200,000 balance of
their Accounts Receivable will eventually be
uncollectible.
9-19
4
Write-Offs to the
Allowance Account
On January 21, John Parkers account totaling
$6,000 is written off because it is uncollectible.
9-21
9-22
4
During 2010, ExTone Company writes
off $26,750 of uncollectible accounts,
including the $6,000 account of John
Parker. After posting all entries to writeoff uncollectible amounts, Allowance
for Doubtful Accounts will have a
credit balance of $3,250 ($30,000
$26,750).
9-23
9-24
9-25
Reinstatement Entry
Receipt of Cash
Entry
9-27
4
Example Exercise 9-2
Allowance Method
Journalize the following transactions using the
allowance method of accounting for uncollectible
receivables.
July 9
Oct. 11
9-28
9-28
July 9 Cash
1,200
3,900
5,100
3,900
3,900
3,900
4
Estimating Uncollectibles
9-30
4
Percent of Sales Method
4
Percent of Sales Method
After the following adjusting entry on
December 31 is posted, Allowance for
Doubtful Accounts will have a balance of
$25,750 ($3,250 + $22,500).
9-32
4
Percent of Sales Method
9-33
4
Example Exercise 9-3
Percent of Sales Method
At the end of the current year, Accounts Receivable
has a balance of $800,000; Allowance for Doubtful
Accounts has a credit balance of $7,500; and net
sales for the year total $3,500,000. Bad debt
expense is estimated at of 1% of net sales.
Determine (a) the amount of the adjusting entry for
uncollectible accounts; (b) the adjusted balances of
Accounts Receivable, Allowance for Doubtful
Accounts, and Bad Debt Expense; and (c) the net
realizable value of accounts receivable.
9-34
9-34
4
Aging of Receivables
9-36
4
Exhibit 1
9-37
9-38
9-39
4
Percent of Sales Method
The amount to be added to the allowance
account is $23,240 ($26,490 $3,250). The
adjusting entry is as follows:
9-40
4
Percent of Sales Method
9-41
4
The Commercial Collection Agency
Section of the Commercial Law League of
America reported the following collection
rates by number of months past due:
9-42
4
Percent of Sales Method
If the unadjusted balance of the allowance account
had been a debit balance of $2,100, the amount of
the adjustment would have been $28,590.
Aug. 31
Aug. 31
9-43
Adjusting entry
Adjusted balance
4
Example Exercise 9-4
Analysis of Receivable Method
At the end of the current year, Accounts Receivable has a
balance of $800,000; Allowance for Doubtful Accounts has
a credit balance of $7,500; and net sales for the year total
$3,500,000. Using the aging method, the balance of
Allowance for Doubtful Accounts is estimated as $30,000.
Determine (a) the amount of the adjusting entry for
uncollectible accounts; (b) the adjusted balances of
Accounts Receivable, Allowance for Doubtful Accounts,
and Bad Debt Expense, and (c) the net realizable value of
accounts receivable.
9-44
9-44
4
Exhibit 2
9-46
5
Compare the direct writeoff method and allowance
method of accounting for
uncollectible accounts.
9-47
9-47
5
Exhibit 3
(continued)
9-48
5
Exhibit 3
9-49
Allowance Method
9-50
6
Describe the accounting
for notes receivable.
9-51
9-51
Characteristics of
Notes Receivable
A note receivable, or promissory note, is a
written document containing a promise to pay:
The maker is the party making the promise to pay.
9-52
(continued)
Characteristics of Notes
Receivable (continued)
is to be paid.
The term of the note is the amount of time between
the issuance and due dates.
The interest rate is that rate of interest that must be
paid on the face amount for the term of the note.
9-53
6
Exhibit 4
9-54
Promissory Note
6
What is the due date of a 90day note dated March 16?
Days in March
31 days
Minus issuance date of note
16
Days remaining in March
15 days
Add days in April
30
Add days in May
31
Add days in June (due date of
June 14)
14
Term of note90 days
9-55
6
An Alternate Approach
Total days in note
Number of days in March
Issue date of note
Remaining days in March
Number of days in April
Number of days in May
Residual days in June
90 days
31
March 16
15 days
75 days
30 days
45 days
31 days
14 days
Answer: June 14
9-56
9-57
6
Accounting for Notes
Receivable
Received a $6,000, 12%, 30-day note dated
November 21, 2010 in settlement of the
account of W. A. Bunn Co.
9-58
9-59
6
If W. A. Bunn Company fails to pay the note
on the due date, it is considered a dishonored
note receivable. The note and interest are
transferred to the customers account.
9-60
6
A 90-day, 12% note dated December 1, 2010, is
received from Crawford Company to settle its
account, which has a balance of $4,000.
9-61
6
Assuming that the accounting period ends on
December 31, an adjusting entry is required to
record the accrued interest of $40 ($4,000
0.12 30/360).
9-62
6
On March 1, 2011, $4,120 is received for the
note ($4,000) and interest ($120).
9-63
6
Example Exercise 9-5
Note Receivable
Same Day Surgery Center received a 120-day, 6%
note for $40,000, dated March 14 from a patient on
account.
a. Determine the due date of the note.
b. Determine the maturity value of the note.
c. Journalize the entry to record the receipt of the
payment of the note at maturity.
9-64
9-64
b.
c.
Cash........
Notes Receivable..
Interest Revenue...
40,800
40,000
800
7
Describe the reporting of
receivables on the
balance sheet.
9-66
9-66
9-67
Accounts Receivable
Turnover
The accounts receivable turnover measures
how frequently during the year the accounts
receivable are being converted to cash.
Accounts Receivable
Turnover
9-68
Net sales
= Average Accounts Receivable
Net sales
Accounts receivable
Average accounts
2006
$22,527 $21,296
1,429
2,860
receivable
2,145
*[($2,860 + $2,703)/2]
Accounts
Receivable
Turnover
9-69
$21,296
=
$2,782
= 7.
7
2005
--$2,703
2,782
Net sales
Accounts receivable
Average accounts
+
$2,860)/2]
2006
$22,527 $21,296
1,429
2,860
receivable
2,145
*
*[($1,429
Accounts
Receivable
Turnover
$22,527
=
$2,145
= 10.
5
9-70
2005
--$2,703
2,782
9-71
$22,527$21,296
2,145
2,782 *
*$21,296/365
61.7
$2,782
Number of Days
=
58.3
Sales in
Receivables
= 47.
7
9-72
2006
58.3
$22,527$21,296
2,145 *
2,782
*$22,527/365
61.7
$2,145
Number of Days
=
61.7
Sales in
Receivables
= 34.
8
9-73
2006
58.3
9-74