Professional Documents
Culture Documents
Edition
Chapter 7
The
Revenue/Receivable/
Cash Cycle
Intermediate
Accounting
James D. Stice
Earl K. Stice
PowerPoint presented by Douglas Cloud
Professor Emeritus of Accounting, Pepperdine
University
2012 Cengage Learning
7-1
7-3
xx
xx
(continued)
7-4
xx
xx
7-5
Types of Receivables
Nontrade Receivables
Nontrade receivables include all other types
of receivables. They arise from a variety of
transactions, such as:
1) The sale of securities or property other
than inventory
2) Deposits to guarantee contract
performance or expense payment
3) Claims for rebates and tax refunds
4) Dividends and interest receivable
7-7
200
200
7-8
1,000
1,000
600
600
7-10
xxx
xxx
(continued)
7-11
7-12
7-13
Establishing an Allowance
for Bad Debts
xx
7-14
xx
xx
Note:
Note: Bad
Bad Debt
Debt Expense
Expense
is
is not
not debited.
debited.
7-15
1,500
1,500
1,500
1,500
7-17
Accts. receivable
Less: Allowance for
bad debts
Net receivables
$300,000
15,000
$285,000
Accts. receivable
Less: Allowance for
bad debts
Net receivables
$298,500
13,500
$285,000
7-18
2,000
2,000
7-20
900
900
Aging Receivables
7-22
Aging Receivables
The amount derived from aging, $2,870, is the
desired balance of the allowance account after
the adjusting entry. If Allowance for Bad Debts
already has a credit balance of $620 before
adjustment, the following entry is needed:
Bad Debt Expense
Allowance for Bad Debts
2,250
2,250
Helpful Reminder
(continued)
7-27
(continued)
7-28
75,000
(continued)
7-29
(continued)
7-30
90,000
90,000
(continued)
7-31
(continued)
7-32
7-33
17,500
17,500
7-34
7-37
7-38
Composition of Cash
deposited
Funds that can
be withdrawn
Demand deposits
on demand
Petty cash funds
Cashiers checks
Personal checks
Sometimes
Very short-term
referred to as
cash
interest-earning securities equivalents
(continued)
7-39
Composition of Cash
Composition of Cash
7-41
Compensating Balances
7-44
Bank Reconciliation
A comparison of the bank balance
with the book balance is usually made
monthly by means of a summary
known as a bank reconciliation.
Book
balance
Bank
balance
(continued)
7-45
Bank Reconciliation
If, after considering these items, the
bank statement and the book balances
cannot be reconciled, a detailed
analysis of both the banks records and
the depositors books may be necessary
to determine whether errors or
irregularities exist on the records of
either party.
(continued)
7-46
98.50
Cash
Advertising Expense
18.00
98.50
18.00
7-47
118.94
3.16
122.10
7-48
Receivables as a
Source of Cash
Receivables may be converted to
cash quickly in one of two ways:
(continued)
7-50
Receivables as a
Source of Cash
FASB specified in Topic 860 the conditions
for receivables to be accounted for as a
sale:
1. The transferred assets have been
isolated from the transferor. That is, the
transferor and its creditors cannot
access the assets.
2. The transferee has the right to pledge
or exchange the transferred assets.
(continued)
7-51
Receivables as a
Source of Cash
3. The transferor does not maintain
effective control over the assets
through either (a) an agreement to
repurchase them before their maturity
or (b) the ability to cause the
transferee to return specific assets.
7-52
Sale of Receivables
Without Recourse
7-53
Sale of Receivables
Without Recourse
Recourse is defined by the FASB as the right
of a transferee of receivables to receive
payment from the transferor of those receivable
for any of the following reasons:
a) failure of the debtors to pay when due,
b) the effects of prepayments, or
c) adjustments resulting from defects in the
eligibility of the transferred receivables.
(continued)
7-54
Sale of Receivables
Without Recourse
Sale of Receivables
Without Recourse
Cash
8,075
Receivable from Factor
425
Allowance for Bad Debts
300
Loss from Factoring Receivables
1,200
Accounts Receivable
10,000
To record the factoring of receivables.
Computations:
Cash: $8,500 $425 = $8,075
Factor receivable: $8,500 5% = $425
Factoring loss: ($10,000 $300) $8,500 = $1,200
(continued)
7-56
Sale of Receivables
Without Recourse
Assuming there were no returns or
allowances, the final settlement would be
recorded as follows:
Cash
Receivable from Factor
To record the final settlement
associated with previously
factored receivables.
425
425
7-57
Sale of Receivables
With Recourse
Selling receivables with recourse
means that a purchaser (bank or finance
company) advances cash in return for
receivables but retains the right to collect
from the seller if debtors (sellers
customers) fail to make payments when
due.
(continued)
7-58
Secured Borrowing
7-59
Secured Borrowing
7-60
Derecognition of
Receivables: IAS 39
The purpose of the three conditions in
FASB ASC Section 860-10-40 is to
identify receivable transfers in which
economic ownership of the receivables has
been transferred. IAS 39 contains the
same concept but applied slightly
differently.
(continued)
7-61
Derecognition of
Receivables: IAS 39
IAS 39 contains a 2-step test for
derecognition.
1. Determine whether the receivable transfer
involves a transfer of substantially all of
the risks and rewards of ownership of the
[receivable]. If so, the transfer is
accounted for as a sale of the receivable.
(continued)
7-62
Derecognition of
Receivables: IAS 39
2. If the receivable transfer does not involve
the transfer of substantially all the risks and
rewards of ownership, determine whether
control of the receivable has been
transferred. If so, account for the
receivable transfer as a sale. If not, the
transfer is treated as a secured loan.
7-63
Notes Receivable
A promissory note is an unconditional
written promise to pay a certain sum of
money at a specified time.
(continued)
7-65
7-66
(continued)
7-67
7-68
7-72
Impact of Uncollectible
Accounts on Cash Flows
A decrease in receivables can occur when
the:
customers pay on account
and
customers never pay and the account
is written off
7-73
Chapter 7
The
The End
End
$
7-74
7-75