Lecture Accounting principles (8th edition) – Chapter 9: Accounting for receivables

After studying this chapter, you should be able to: Identify the different types of receivables, explain how accounts receivable are recognized in the accounts, distinguish between the methods and bases used to value accounts receivable, describe the entries to record the disposition of accounts receivable, compute the maturity date of and interest on notes receivable.

Chapter 9-1

ACCOUNTING FOR

RECEIVABLES

CHAPTER   9 CHAPTER  9   9

Accounts Receivable

Notes Receivable

Notes Receivable

Statement Presentation and Analysis

Statement Presentation and Analysis

Presentation Analysis

Determining maturity date Computing interest Recognizing notes

receivable

Accounting for Receivables

Accounting for Receivables

Recognizing accounts receivable Valuing accounts receivable Disposing of

Accounts  Receivable

Types of Receivables

Types of Receivables

LO 1  Identify the different types of receivables.

Claims for which  formal instruments of  credit are issued

as proof of debt.

“Nontrade”  (interest,  loans to officers,  advances to employees,  and income taxes  refundable).

Notes Receivable

Notes Receivable Other 

Receivables

Other  Receivables

Recognizing Accounts Receivable

Recognizing Accounts Receivable

LO 2  Explain how companies recognize accounts receivable.

Valuation can be difficult because an unknown amount of  receivables will become uncollectible.

LO 3  Distinguish between the methods and bases companies use to 

value accounts receivable.

Accounts Receivable

Accounts Receivable

Losses are estimated:

better matching.

receivable stated at net realizable  value.

required by GAAP.

Methods of Accounting for Uncollectible Accounts

Direct Write­Off Theoretically undesirable:

Chapter

9-13

Assets Current Assets:

Assets Current Assets:

Chapter

9-17

E9­6    Prepare the journal entries on December 31, 2008, May 11, 2009, and  June 12, 2009.

E9­6    Prepare the journal entries on December 31, 2008, May 11, 2009, and  June 12, 2009.

Actual balance (credit)      (150)      150

Estimated uncollectible (6,250) (6,250)

Case 1 Case 2 Percentage of Sales 

Valuing Accounts Receivable

Valuing Accounts Receivable

The Allowance for Doubtful Accounts has an ending balance of 

$6,400 in Case 1 and $6,100 in Case 2.

Valuing Accounts Receivable

value accounts receivable.

Valuing Accounts Receivable

Valuing Accounts Receivable

When estimating losses using  Percentage of Receivables , companies 

often prepare an  aging schedule , which classifies customer balances by 

the length of time they have been unpaid.

Valuing Accounts Receivable

Valuing Accounts Receivable

Illustration 9­7

E9­7    (a) On March 3, Cornwell Appliances sells $680,000 of its receivables 

to Marsh Factors Inc.  Marsh Factors assesses a finance charge of 3% of the  amount of receivables sold.  Prepare the entry on Cornwell Appliances’ books 

Retailer records the sale in a similar manner as checks  deposited from cash sale.

E9­7     (b) On May 10, Dale Company sold merchandise for $3,500 and 

accepted the customer’s America Bank MasterCard.  America Bank charges a  4% service charge for credit card sales.  Prepare the entry on Dale Company’s  books to record the sale of merchandise.

Notes Receivable

Illustration 9­10

Computing Interest Illustration 9­13

Recognizing Notes Receivable

E9­10    Orosco Supply Co. has the following transactions related to notes receivable  during the last 2 months of 2008.

Nov. 1  Loaned $15,000 cash to Sally Givens on a 1­year, 10% note.

Dec. 11  Sold goods to John Countryman, Inc., receiving a $6,750, 90­day, 8% note Dec. 16  Received a $4,000, 6­month, 9% note in exchange for Bob Reber’s 

outstanding accounts receivable.

Dec. 31  Accrued interest revenue on all notes receivable.

Instructions

(a) Journalize the transactions for Orosco Supply Co.

Chapter

9-37

E9­10   Nov. 1  Loaned $15,000 cash to Sally Givens on a 1­year, 10% note.   Dec. 11  Sold goods to John Countryman, Inc., receiving a $6,750, 90­day, 8%  note.  Dec. 16  Received a $4,000, 6­month, 9% note in exchange for Bob 

Total accrued interest $ 295

Recognizing Notes Receivable

Recognizing Notes Receivable

Allowance for Doubtful Accounts is used.

Notes Receivable

E9­13     (c) Prepare the entry to record the dishonor of the note, assuming that  Kleinsorge Company does not expect collection in the future.

Report both gross amount of receivables and allowance for  doubtful account.

Report bad debts expense and service charge expense as selling  expenses.

Report interest revenue under “Other revenues and gains.”

B/S

I/S

Chapter

9-47

Analysis of Receivables

Variant of the accounts receivable turnover ratio is  average collection  period   in terms of days.

“Copyright © 2008 John Wiley & Sons, Inc. All rights reserved. Reproduction or  translation of this work beyond that permitted in Section 117 of the 1976 United  States Copyright Act without the express written permission of the copyright owner 

is unlawful. Request for further information should be addressed to the Permissions  Department, John Wiley & Sons, Inc. The purchaser may make back­up copies for  his/her own use only and not for distribution or resale. The Publisher assumes no  responsibility for errors, omissions, or damages, caused by the use of these programs 

or from the use of the information contained herein.”

Copyright

Copyright