Accounting For Receivables: Accounting Principles, Ninth Edition
Accounting For Receivables: Accounting Principles, Ninth Edition
Accounting For Receivables: Accounting Principles, Ninth Edition
Accounting for
Receivables
Chapter
9-1
Study Objectives
1.
2.
3.
4.
5.
6.
7.
8.
9.
Chapter
9-2
Types of
Receivables
Accounts
receivable
Accounts
Receivable
Notes receivable
Recognizing
accounts
receivable
Other
receivables
Valuing accounts
receivable
Disposing of
accounts
receivable
Notes Receivable
Determining
maturity date
Computing
interest
Recognizing
notes receivable
Valuing notes
receivable
Disposing of notes
receivable
Chapter
9-3
Statement
Presentation and
Analysis
Presentation
Analysis
Types of Receivables
Amounts due from individuals and other companies that
are expected to be collected in cash.
Amounts owed by
customers that
result from the
sale of goods and
services.
Nontrade
(interest, loans to
officers, advances
to employees, and
income taxes
refundable).
Accounts
Receivable
Notes
Receivable
Other
Receivables
Chapter
9-4
Accounts Receivable
Three accounting issues:
Accounts receivable
Sales
Chapter
9-6
1,000
1,000
100
Accounts receivable
100
Jul. 11
Cash
882
18
900
Accounts Receivable
Valuing Accounts Receivables
Are reported as a current asset on the balance
sheet.
Are reported at the amount the company thinks
they will be able to collect.
Sales on account raise the possibility of accounts
not being collected.
Valuation can be difficult because an unknown
amount of receivables will become uncollectible.
Chapter
9-8
Chapter
9-9
Allowance Method
Losses are estimated:
better matching.
receivable stated at net
realizable value.
required by GAAP.
Chapter
9-10
$ 346
500
25
475
812
40
1,673
Chapter
9-11
$ 346
475
812
40
1,673
12,000
Chapter
9-13
12,000
Chapter
9-14
500
500
Illustration 9-3
Chapter
9-15
Accounts receivable
500
Cash
500
Accounts receivable
Chapter
9-16
500
500
Chapter
9-17
8,000 *
8,000
* $800,000 x 1%
Chapter
9-18
Chapter
9-19
Chapter
9-20
Illustration 9-7
Aging schedule
1,700 *
1,700
* $2,228 - 528
Chapter
9-21
Chapter
9-22
of cash.
and costly.
Chapter
9-24
Chapter
9-25
Cash
Service charge expense
Accounts receivable
Chapter
9-26
588,000
12,000
600,000
Chapter
9-27
Cash
Service charge expense
Sales
Chapter
9-28
970
30
1,000
Notes Receivable
Companies may grant credit in exchange for a
promissory note. A promissory note is a written
promise to pay a specified amount of money on
demand or at a definite time.
Promissory notes may be used:
1. when individuals and companies lend or
borrow money,
2. when amount of transaction and credit
Notes Receivable
To the Payee, the promissory note is a note receivable.
To the Maker, the promissory note is a note payable.
Illustration 9-10
Chapter
9-30
Notes Receivable
Determining the Maturity Date
Note expressed in terms of
Months
Days
Computing Interest
Chapter
9-31
Illustration 9-13
Notes receivable
Accounts receivable
Chapter
9-32
1,000
1,000
Notes Receivable
Valuing Notes Receivable
Like accounts receivable, companies report shortterm notes receivable at their cash (net)
realizable value.
Estimation of cash realizable value and bad debts
expense are done similarly to accounts receivable.
Allowance for Doubtful Accounts is used.
Chapter
9-33
Notes Receivable
Disposing of Notes Receivable
1. Notes may be held to their maturity date.
2. Maker may default and payee must make an
Chapter
9-34
Notes Receivable
Disposing of Notes Receivable
Honor of Notes Receivable
A note is honored when its maker pays it in full
at its maturity date.
Dishonor of Notes Receivable
Notes Receivable
Honor of Notes Receivables
Illustration: Assume that Betty Co. lends Wayne Higley Inc.
$10,000 on June 1, accepting a five-month, 9% interestbearing note. Assuming that Betty Co. presents the note to
Wayne Higley Inc. on the maturity date, Betty Co.s entry to
record the collection is:
Nov. 1
Chapter
9-36
Cash
10,375
Notes receivable
10,000
Interest revenue
375
Notes Receivable
Honor of Notes Receivables
Illustration: If Betty Co. prepares financial statements as of
September 30, it must accrue interest. Betty Co. would make
an adjusting entry to record 4 months interest.
Sept. 30
Interest receivable
Interest revenue
Chapter
9-37
300
300
Notes Receivable
Honor of Notes Receivables
Illustration: The entry by Betty Co. to record the honoring
of the Wayne Higley Inc. note on November 1 is:
Nov. 1
Cash
Notes receivable
Interest receivable
Interest revenue
Chapter
9-38
10,375
10,000
300
75
Notes Receivable
Dishonor of Notes Receivables
Illustration: Assume that Wayne Higley Inc. on November 1
indicates that it cannot pay at the present time. If Betty Co.
does expect eventual collection, it would make the following
entry at the time the note is dishonored (assuming no previous
accrual of interest).
Nov. 1
Chapter
9-39
Accounts receivable
10,375
Notes receivable
10,000
Interest revenue
375
I/S
Chapter
9-40
Copyright
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Chapter
9-43