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[object Object],[object Object],Accounting,  Third Edition
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Study Objectives
Types of Receivables Accounts Receivable Notes Receivable Statement Presentation of Receivables Managing Receivables Reporting and Analyzing Receivables ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
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. Accounts Receivable SO 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 Other Receivables
Accounts Receivable ,[object Object],[object Object],[object Object],SO 2  Explain how accounts receivable are recognized in the accounts. A service organization records a receivable when it provides service on account.  A merchandiser records accounts receivable at the point of sale of merchandise on account. Recognizing Accounts Receivable
Accounts Receivable Illustration:   Assume that you use your JCPenney Company credit card to purchase clothing with a sales price of $300. Assuming that you owe $300 at the end of the month, and JCPenney charges 1.5% per month on the balance due.  Prepare the entry to record the sale and the adjusting entry to record interest revenue. Accounts receivable 300.00 Sales 300.00 SO 2  Explain how companies recognize accounts receivable. Accounts receivable 4.50 Interest revenue  (300 x 1.5%) 4.50
Accounts Receivable Valuing Accounts Receivables ,[object Object],[object Object],[object Object],[object Object],SO 3  Describe the methods used to account for bad debts.
[object Object],[object Object],[object Object],[object Object],[object Object],Valuing Accounts Receivable Methods of Accounting for Uncollectible Accounts ,[object Object],[object Object],[object Object],[object Object],[object Object],SO 3  Describe the methods used to account for bad debts.
Valuing Accounts Receivable Illustration:   Assume, for example, that Warden Co. writes off M. E. Doran’s $200 balance as uncollectible on December 12.  Warden’s entry is: Bad debt expense 200 Accounts receivable 200 Direct Write-off Method for Uncollectible Accounts SO 3  Describe the methods used to account for bad debts.
Valuing Accounts Receivable Allowance Method for Uncollectible Accounts ,[object Object],[object Object],[object Object],SO 3  Describe the methods used to account for bad debts.
Valuing Accounts Receivable Illustration:   Assume that Hampson Furniture has credit sales of $1,200,000 in 2010, of which $200,000 remains uncollected at December 31.  The credit manager estimates that $12,000 of these sales will prove uncollectible. Bad debts expense 12,000 Dec. 31 Allowance for doubtful accounts 12,000 SO 3  Describe the methods used to account for bad debts.
Valuing Accounts Receivable Illustration 8-3 Presentation of allowance for doubtful accounts SO 3  Describe the methods used to account for bad debts.
Valuing Accounts Receivable Illustration:   Assume that the vice-president of finance of Hampson Furniture on March 1, 2011, authorizes a write-off of the $500 balance owed by R. A. Ware. The entry to record the write-off is: Allowance for doubtful accounts  500 Mar. 1 Accounts receivable 500 Recording Write-off of an Uncollectible Account Illustration 8-4 SO 3  Describe the methods used to account for bad debts.
Valuing Accounts Receivable Illustration:   Assume that on July 1, R. A. Ware pays the $500 amount that Hampson Furniture had written off on March 1. Hampson makes these entries: Accounts receivable  500 Jul. 1   Allowance for doubtful accounts  500 Recovery of an Uncollectible Account Cash  500 1 Accounts receivable 500 SO 3  Describe the methods used to account for bad debts.
Valuing Accounts Receivable Estimating the Allowance Under the  percentage of receivables   basis, management establishes a percentage relationship between the amount of receivables and expected losses from uncollectible accounts. SO 3  Describe the methods used to account for bad debts.
Valuing Accounts Receivable Under  percentage of receivables basis , management establishes a percentage relationship between the amount of receivables and expected losses from uncollectible accounts. Illustration 8-6   SO 3  Describe the methods used to account for bad debts.
Valuing Accounts Receivable Illustration:   Assume the unadjusted trial balance shows Allowance for Doubtful Accounts with a credit balance of $528.  Prepare the adjusting entry assuming $2,228 is the estimate of uncollectible receivables from the aging schedule. Bad debts expense  1,700 Dec. 31   Allowance for doubtful accounts  1,700 Estimating the Allowance Illustration 8-7   Bad debts accounts after posting
Valuing Accounts Receivable Illustration 8-8   Note disclosure of accounts receivable SO 3  Describe the methods used to account for bad debts.
 
Notes Receivable ,[object Object],[object Object],[object Object],[object Object],[object Object]
Notes Receivable Illustration 8-9 To the  Payee , the promissory note is a note receivable. To the  Maker , the promissory note is a note payable.
Notes Receivable Determining the Maturity Date SO 4  Compute the interest on notes receivable. ,[object Object],[object Object],[object Object],Computing Interest Illustration 8-10
Notes Receivable Computing Interest SO 4  Compute the interest on notes receivable. When counting days, omit the date the note is issued, but include the due date. Illustration 8-11
Notes Receivable Recognizing Notes Receivable SO 4  Compute the interest on notes receivable. Illustration:  Assuming that Brent Company wrote a $1,000, two-month, 8% promissory note dated May 1, to settle an open account.  Prepare entry would Wilma Company makes for the receipt of the note. Notes receivable  1,000 May 1   Accounts receivable  1,000
Notes Receivable Valuing Notes Receivable Like accounts receivable, companies report short-term 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. SO 4  Compute the interest on notes receivable.
Notes Receivable Disposing of Notes Receivable SO 5  Describe the entries to record the disposition of notes receivable. ,[object Object],[object Object],[object Object]
Notes Receivable Honor of Notes Receivable SO 5  Describe the entries to record the disposition of notes receivable. A note is  honored   when its maker pays it in full at its maturity date. Dishonor of Notes Receivable A  dishonored  note is not paid in full at maturity.  Dishonored note receivable is no longer negotiable. Disposing of Notes Receivable
Notes Receivable Illustration:   Assume that Wolder Co. lends Higley Inc. $10,000 on June 1, accepting a five-month, 9% interest note.  If Wolder presents the note to Higley Inc. on November 1, the maturity date, Wolder’s entry to record the collection is: Honor of Notes Receivable SO 5  Describe the entries to record the disposition of notes receivable. Cash  10,375 Jun. 1   Notes receivable  10,000   Interest revenue  375 ($10,000 x 9% x 5/12 = $ 375)
Notes Receivable Illustration:   Suppose instead that Wolder Co. prepares financial statements as of September 30. Prepare the adjusting entry by Wolder is for four months ending Sept. 30. Accrual of Interest SO 5  Describe the entries to record the disposition of notes receivable. Interest receivable  300 Sept. 1   Interest revenue  300 ($10,000 x 9% x 4/12 = $ 300)
Notes Receivable Illustration:   Prepare the entry  Wolder’s would make to  record the honoring of the Higley note on November 1. Honor of Notes Receivable SO 5  Describe the entries to record the disposition of notes receivable. Cash  10,375 Nov. 1   Notes receivable  10,000   Interest receivable 300   Interest revenue  75
Financial Statement Presentation SO 6  Explain the statement presentation of receivables. Illustration 8-12   Balance sheet presentation  of receivables
Financial Statement Presentation Managing Receivables SO 7  Describe the principles of sound accounts receivable management. ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
 
Financial Statement Presentation Evaluating Liquidity of Receivables SO 8  Identify ratios to analyze a company’s receivables. Illustration 8-14
Financial Statement Presentation Evaluating Liquidity of Receivables ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],SO 8  Identify ratios to analyze a company’s receivables.
Financial Statement Presentation Accelerating Cash Receipts ,[object Object],[object Object],[object Object],[object Object],SO 9  Describe methods to accelerate the receipt of cash from receivables.
Financial Statement Presentation National Credit Card Sales ,[object Object],[object Object],[object Object],[object Object],SO 9  Describe methods to accelerate the receipt of cash from receivables. The retailer pays the credit card issuer a fee of 2% to 4% of the invoice price for its services.
Financial Statement Presentation National Credit Card Sales Illustration:   Morgan Marie purchases $1,000 of compact discs for her restaurant from Sondgeroth Music Co., and she charges this amount on her Visa First Bank Card. The service fee that First Bank charges Sondgeroth Music is 3%. SO 9  Describe methods to accelerate the receipt of cash from receivables. Cash  970 Service charge expense  30   Sales 1,000
Financial Statement Presentation Sale of Receivables to a Factor Illustration:   Assume that Hendredon Furniture factors $600,000 of receivables to Federal Factors, Inc. Federal Factors assesses a service charge of 2% of the amount of receivables sold. SO 9  Describe methods to accelerate the receipt of cash from receivables. Cash  588,000 Service charge expense  12,000   Accounts receivable 600,000 A  factor  is a finance company or bank that buys receivables from businesses for a fee and then collects the payments directly from the customers.
 
Financial Statement Presentation SO 9  Describe methods to accelerate the receipt of cash from receivables.
Copyright “ Copyright © 2009 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 back-up 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.”

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Ch08

  • 1.  
  • 2.
  • 3.
  • 4.
  • 5. 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. Accounts Receivable SO 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 Other Receivables
  • 6.
  • 7. Accounts Receivable Illustration: Assume that you use your JCPenney Company credit card to purchase clothing with a sales price of $300. Assuming that you owe $300 at the end of the month, and JCPenney charges 1.5% per month on the balance due. Prepare the entry to record the sale and the adjusting entry to record interest revenue. Accounts receivable 300.00 Sales 300.00 SO 2 Explain how companies recognize accounts receivable. Accounts receivable 4.50 Interest revenue (300 x 1.5%) 4.50
  • 8.
  • 9.
  • 10. Valuing Accounts Receivable Illustration: Assume, for example, that Warden Co. writes off M. E. Doran’s $200 balance as uncollectible on December 12. Warden’s entry is: Bad debt expense 200 Accounts receivable 200 Direct Write-off Method for Uncollectible Accounts SO 3 Describe the methods used to account for bad debts.
  • 11.
  • 12. Valuing Accounts Receivable Illustration: Assume that Hampson Furniture has credit sales of $1,200,000 in 2010, of which $200,000 remains uncollected at December 31. The credit manager estimates that $12,000 of these sales will prove uncollectible. Bad debts expense 12,000 Dec. 31 Allowance for doubtful accounts 12,000 SO 3 Describe the methods used to account for bad debts.
  • 13. Valuing Accounts Receivable Illustration 8-3 Presentation of allowance for doubtful accounts SO 3 Describe the methods used to account for bad debts.
  • 14. Valuing Accounts Receivable Illustration: Assume that the vice-president of finance of Hampson Furniture on March 1, 2011, authorizes a write-off of the $500 balance owed by R. A. Ware. The entry to record the write-off is: Allowance for doubtful accounts 500 Mar. 1 Accounts receivable 500 Recording Write-off of an Uncollectible Account Illustration 8-4 SO 3 Describe the methods used to account for bad debts.
  • 15. Valuing Accounts Receivable Illustration: Assume that on July 1, R. A. Ware pays the $500 amount that Hampson Furniture had written off on March 1. Hampson makes these entries: Accounts receivable 500 Jul. 1 Allowance for doubtful accounts 500 Recovery of an Uncollectible Account Cash 500 1 Accounts receivable 500 SO 3 Describe the methods used to account for bad debts.
  • 16. Valuing Accounts Receivable Estimating the Allowance Under the percentage of receivables basis, management establishes a percentage relationship between the amount of receivables and expected losses from uncollectible accounts. SO 3 Describe the methods used to account for bad debts.
  • 17. Valuing Accounts Receivable Under percentage of receivables basis , management establishes a percentage relationship between the amount of receivables and expected losses from uncollectible accounts. Illustration 8-6 SO 3 Describe the methods used to account for bad debts.
  • 18. Valuing Accounts Receivable Illustration: Assume the unadjusted trial balance shows Allowance for Doubtful Accounts with a credit balance of $528. Prepare the adjusting entry assuming $2,228 is the estimate of uncollectible receivables from the aging schedule. Bad debts expense 1,700 Dec. 31 Allowance for doubtful accounts 1,700 Estimating the Allowance Illustration 8-7 Bad debts accounts after posting
  • 19. Valuing Accounts Receivable Illustration 8-8 Note disclosure of accounts receivable SO 3 Describe the methods used to account for bad debts.
  • 20.  
  • 21.
  • 22. Notes Receivable Illustration 8-9 To the Payee , the promissory note is a note receivable. To the Maker , the promissory note is a note payable.
  • 23.
  • 24. Notes Receivable Computing Interest SO 4 Compute the interest on notes receivable. When counting days, omit the date the note is issued, but include the due date. Illustration 8-11
  • 25. Notes Receivable Recognizing Notes Receivable SO 4 Compute the interest on notes receivable. Illustration: Assuming that Brent Company wrote a $1,000, two-month, 8% promissory note dated May 1, to settle an open account. Prepare entry would Wilma Company makes for the receipt of the note. Notes receivable 1,000 May 1 Accounts receivable 1,000
  • 26. Notes Receivable Valuing Notes Receivable Like accounts receivable, companies report short-term 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. SO 4 Compute the interest on notes receivable.
  • 27.
  • 28. Notes Receivable Honor of Notes Receivable SO 5 Describe the entries to record the disposition of notes receivable. A note is honored when its maker pays it in full at its maturity date. Dishonor of Notes Receivable A dishonored note is not paid in full at maturity. Dishonored note receivable is no longer negotiable. Disposing of Notes Receivable
  • 29. Notes Receivable Illustration: Assume that Wolder Co. lends Higley Inc. $10,000 on June 1, accepting a five-month, 9% interest note. If Wolder presents the note to Higley Inc. on November 1, the maturity date, Wolder’s entry to record the collection is: Honor of Notes Receivable SO 5 Describe the entries to record the disposition of notes receivable. Cash 10,375 Jun. 1 Notes receivable 10,000 Interest revenue 375 ($10,000 x 9% x 5/12 = $ 375)
  • 30. Notes Receivable Illustration: Suppose instead that Wolder Co. prepares financial statements as of September 30. Prepare the adjusting entry by Wolder is for four months ending Sept. 30. Accrual of Interest SO 5 Describe the entries to record the disposition of notes receivable. Interest receivable 300 Sept. 1 Interest revenue 300 ($10,000 x 9% x 4/12 = $ 300)
  • 31. Notes Receivable Illustration: Prepare the entry Wolder’s would make to record the honoring of the Higley note on November 1. Honor of Notes Receivable SO 5 Describe the entries to record the disposition of notes receivable. Cash 10,375 Nov. 1 Notes receivable 10,000 Interest receivable 300 Interest revenue 75
  • 32. Financial Statement Presentation SO 6 Explain the statement presentation of receivables. Illustration 8-12 Balance sheet presentation of receivables
  • 33.
  • 34.  
  • 35. Financial Statement Presentation Evaluating Liquidity of Receivables SO 8 Identify ratios to analyze a company’s receivables. Illustration 8-14
  • 36.
  • 37.
  • 38.
  • 39. Financial Statement Presentation National Credit Card Sales Illustration: Morgan Marie purchases $1,000 of compact discs for her restaurant from Sondgeroth Music Co., and she charges this amount on her Visa First Bank Card. The service fee that First Bank charges Sondgeroth Music is 3%. SO 9 Describe methods to accelerate the receipt of cash from receivables. Cash 970 Service charge expense 30 Sales 1,000
  • 40. Financial Statement Presentation Sale of Receivables to a Factor Illustration: Assume that Hendredon Furniture factors $600,000 of receivables to Federal Factors, Inc. Federal Factors assesses a service charge of 2% of the amount of receivables sold. SO 9 Describe methods to accelerate the receipt of cash from receivables. Cash 588,000 Service charge expense 12,000 Accounts receivable 600,000 A factor is a finance company or bank that buys receivables from businesses for a fee and then collects the payments directly from the customers.
  • 41.  
  • 42. Financial Statement Presentation SO 9 Describe methods to accelerate the receipt of cash from receivables.
  • 43. Copyright “ Copyright © 2009 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 back-up 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.”

Notas do Editor

  1. 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information)
  2. Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation. Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt. Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets. Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees. Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss: difference between the actual return and the expected return on plan assets and, amortization of the unrecognized net gain or loss from previous periods