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Lecture 08 - Receivables
Lecture 08 - Receivables
School of Business
FINANCIAL ACCOUNTING
Sem 2 (2019-2020)
Lecturer: Mr. Vu Tuan Anh, CMA, MSA
Email: anhtv@hcmiu.edu.vn (preferred)
Tutor: Ms. Tran My Ha
PREVIEW OF LECTURE 8
8-2
LECTURE
Accounting for Receivables
8
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the different types of receivables.
2. Explain how companies recognize accounts receivable.
3. Distinguish between the methods and bases companies use to value
accounts receivable.
4. Describe the entries to record the disposition of accounts receivable.
5. Compute the maturity date of and interest on notes receivable.
6. Explain how companies recognize notes receivable.
7. Describe how companies value notes receivable.
8. Describe the entries to record the disposition of notes receivable.
9. Explain the statement presentation and analysis of receivables.
8-3
Learning Objective 1
Types of Receivables Identify the different types of
receivables.
8-4 LO 1
TYPES OF RECEIVABLES
Illustration 8-1
Receivables as a percentage of assets
8-5 LO 1
Accounts Receivable
Learning Objective
2
Recognizing Accounts Receivable Explain how companies
recognize accounts
Service organization records a receivable.
8-6 LO 2
Recognizing Accounts Receivable
8-7 LO 2
Recognizing Accounts Receivable
8-8 LO 2
Recognizing Accounts Receivable
Assume that you owe $300 at the end of the month, and
JCPenney charges 1.5% per month on the balance due.
8-9 LO 2
Valuing Accounts Receivable
Learning Objective 3
Distinguish between the
Current asset. methods and bases
companies use to value
Valuation (net realizable value). accounts receivable.
8-10 LO 3
Valuing Accounts Receivable
8-11 LO 3
DIRECT WRITE-OFF METHOD FOR
UNCOLLECTIBLE ACCOUNTS
Theoretically undesirable:
No matching.
Receivable not stated at cash realizable value.
Not acceptable for financial reporting.
8-12 LO 3
ALLOWANCE METHOD FOR
UNCOLLECTIBLE ACCOUNTS
8-13 LO 3
ALLOWANCE METHOD
8-14 LO 3
Allowance Method for Uncollectibles
Illustration 8-3
Presentation of allowance for doubtful accounts
8-15 LO 3
Allowance Method for Uncollectibles
Illustration 8-4
General ledger balances after write-off
8-16 LO 3
Allowance Method for Uncollectibles
Illustration 8-5
8-17 Cash realizable value comparison LO 3
Allowance Method for Uncollectibles
1 Cash 500
Accounts Receivable—R. A. Ware 500
8-18 LO 3
Allowance Method for Uncollectibles
8-19 LO 3
Allowance Method for Uncollectibles
Management estimates
what percentage of credit
sales will be uncollectible.
This percentage is based
on past experience and
anticipated credit policy.
8-20 LO 3
Allowance Method for Uncollectibles
Percentage-of-Sales
Illustration: Assume that Gonzalez SA elects to use the
percentage-of-sales basis. It concludes that 1% of net credit sales
will become uncollectible. If net credit sales for 2017 are
€800,000, the adjusting entry is:
* €800,000 x 1%
8-21 LO 3
Allowance Method for Uncollectibles
Percentage-of-Sales
Emphasizes matching of expenses with revenues.
Illustration 8-7
Bad debt accounts after posting
8-22 LO 3
Allowance Method for Uncollectibles
Management establishes a
percentage relationship
between the amount of
receivables and expected
losses from uncollectible
accounts.
8-23 LO 3
Allowance Method for Uncollectibles
8-24
Allowance Method for Uncollectibles
Percentage-of-Receivables (₩ in thousands)
8-25 LO 3
Disposing of Accounts Receivables
Learning Objective 4
SALE OF RECEIVABLES Describe the entries to record
the disposition of accounts
receivable.
Finance company or bank.
8-26 LO 4
SALE OF RECEIVABLES
Cash 588,000
Service Charge Expense 12,000
Accounts Receivable 600,000
8-27 LO 4
Disposing of Accounts Receivables
Advantages to retailer:
► Issuer does credit investigation of customer.
► Issuer maintains customer accounts.
► Issuer undertakes collection and absorbs losses.
► Receives cash more quickly.
8-28 LO 4
CREDIT CARD SALES
Cash 5,820
Service Charge Expense 180
Sales Revenue 6,000
8-29 LO 4
Notes Receivable
Learning Objective
5
Companies may grant credit in exchange Compute the maturity
date of and interest on
for a promissory note. A promissory note notes receivable.
8-30 LO 5
Notes Receivable
Illustration 8-11
8-31 Promissory note LO 5
Determining the Maturity Date
8-32 LO 5
Computing Interest
Illustration 8-14
Formula for computing interest
When counting days, omit the date the note is issued, but
include the due date.
Illustration 8-15
Computation of interest
8-33 LO 5
Recognizing Notes Receivable
Learning Objective
Illustration: Calhoun Company wrote a ₤1,000, 6
Explain how companies
two-month, 12% promissory note dated May 1, recognize notes
receivable.
to settle an open account. Prepare entry would
Wilma Company makes for the receipt of the note.
8-34 LO 6
Valuing Notes Receivable
Learning Objective
Report short-term notes receivable at 7
Describe how
their cash (net) realizable value. companies value notes
receivable.
8-35 LO 7
Disposing of Notes Receivable
Learning Objective
1. Notes may be held to their maturity date. 8
Describe the entries to
record the disposition of
2. Maker may default and payee must make notes receivable.
8-36 LO 8
Disposing of Notes Receivable
8-37 LO 8
HONOR OF NOTES RECEIVABLE
8-38 LO 8
ACCRUAL OF INTEREST RECEIVABLE
8-40 LO 8
DISHONOR OF NOTES RECEIVABLE
8-41 LO 8
Statement Presentation and Analysis
Learning Objective
Presentation 9
Explain the statement
presentation and analysis
Identify in the statement of financial of receivables.
8-42 LO 9
Accounts Receivable
Allowance for
Accounts Receivable Doubtful Accounts
Beg. 500 25 Beg.
8-43 LO 3
Accounts Receivable
ABC Corporation
Statement of Financial Position (partial)
Current Assets:
Supplies € 40
Inventory 812
Accounts receivable 500
Less: Allowance for doubtful accounts (25) 475
Cash 330
Total current assets 1,657
8-44 LO 3
Accounts Receivable
Alternate
ABC Corporation Presentation
Statement of Financial Position (partial)
Current Assets:
Supplies € 40
Inventory 812
Accounts receivable, net of €25 allowance 475
Cash 330
Total current assets 1,657
8-45 LO 3
Accounts Receivable
Journal entry for credit sale of €100.
Accounts Receivable 100
Sales 100
Allowance for
Accounts Receivable Doubtful Accounts
Beg. 500 25 Beg.
8-46 LO 3
Accounts Receivable
Journal entry for credit sale of €100.
Accounts Receivable 100
Sales 100
Allowance for
Accounts Receivable Doubtful Accounts
Beg. 500 25 Beg.
Sale 100
8-47 LO 3
Accounts Receivable
Collected €333 on account.
Cash 333
Accounts Receivable 333
Allowance for
Accounts Receivable Doubtful Accounts
Beg. 500 25 Beg.
Sale 100
8-48 LO 3
Accounts Receivable
Collected €333 on account.
Cash 333
Accounts Receivable 333
Allowance for
Accounts Receivable Doubtful Accounts
Beg. 500 25 Beg.
Sale 100 333 Coll.
8-49 LO 3
Accounts Receivable
Adjustment of €15 for estimated bad debts.
Bad Debt Expense 15
Allowance for Doubtful Accounts 15
Allowance for
Accounts Receivable Doubtful Accounts
Beg. 500 25 Beg.
Sale 100 333 Coll.
8-50 LO 3
Accounts Receivable
Adjustment of €15 for estimated bad debts.
Bad Debt Expense 15
Allowance for Doubtful Accounts 15
Allowance for
Accounts Receivable Doubtful Accounts
Beg. 500 25 Beg.
Sale 100 333 Coll. 15 Est.
8-51 LO 3
Accounts Receivable
Write-off of uncollectible accounts for €10.
Allowance for Doubtful Accounts 10
Accounts Receivable 10
Allowance for
Accounts Receivable Doubtful Accounts
Beg. 500 25 Beg.
Sale 100 333 Coll. 15 Est.
8-52 LO 3
Accounts Receivable
Write-off of uncollectible accounts for €10.
Allowance for Doubtful Accounts 10
Accounts Receivable 10
Allowance for
Accounts Receivable Doubtful Accounts
Beg. 500 25 Beg.
Sale 100 333 Coll. 15 Est.
10 W/O W/O 10
8-53 LO 3
Accounts Receivable
ABC Corporation
Statement of Financial Position (partial)
Current Assets:
Supplies € 40
Inventory 812
Accounts receivable 257
Less: Allowance for doubtful accounts (30) 227
Cash 330
Total current assets 1,409
8-54 LO 3