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Accounting Principle Kieso 8e - Ch09
Accounting Principle Kieso 8e - Ch09
Study Objectives
1. 2. 3. 4. 5. 6. 7. 8. 9.
Chapter 9-2
Identify the different types of receivables. Explain how companies recognize accounts receivable. Distinguish between the methods and bases companies use to value accounts receivable. Describe the entries to record the disposition of accounts receivable. Compute the maturity date of and interest on notes receivable. Explain how companies recognize notes receivable. Describe how companies value notes receivable. Describe the entries to record the disposition of notes receivable. Explain the statement presentation and analysis of receivables.
Types of Receivables
Accounts receivable Notes receivable Other receivables
Accounts Receivable
Recognizing accounts receivable Valuing accounts receivable
Notes Receivable
Determining maturity date Computing interest Recognizing notes receivable Valuing notes receivable Disposing of notes receivable
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. Accounts Receivable
Chapter 9-4
Claims for which formal instruments of credit are issued as proof of debt. Notes Receivable
Nontrade (interest, loans to officers, advances to employees, and income taxes refundable).
Other Receivables
Accounts Receivable
Three accounting issues:
Instructions: Prepare the journal entries to record these transactions on the books of Wheeler Company using a perpetual inventory system.
Chapter 9-6
Chapter 9-7
Chapter 9-8
Accounts Receivable
Valuing Accounts Receivables
Classification Valuation (net realizable value)
Chapter 9-10
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
Allowance Method
Losses are estimated: better matching. receivable stated at net realizable value. required by GAAP.
Chapter 9-11
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
$ 346
500 25 475 812 40 1,673
Chapter 9-12
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
$ 346
475 812 40 1,673
Chapter 9-13
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
Prepare the journal entries on December 31, 2008, May 11, 2009, and June 12, 2009.
Chapter 9-15
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
8,000 8,000
Chapter 9-16
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
1,100
1,100
1,100 1,100
1,100 1,100
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
Chapter 9-18
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
Case 2
Chapter 9-19
Charge sales
Estimated percentage Estimated uncollectible
$500,000
x $ 1.25% 6,250
===================================================
What should the ending balance be for the allowance account? -- Case 1 and Case 2
Chapter 9-20
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
Case 1
(150) (6,250)
Case 2
150 (6,250)
Ending balance
Journal entry: Bad debt expense
(6,400)
(6,100)
6,250 6,250
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
Estimated percentage
Desired balance for allowance
x
$
8%
5,800
===================================================
What should the ending balance be for the allowance account? -- Case 1 and Case 2
Chapter 9-22
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
5,650 5,650
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
5,950 5,950
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
Chapter 9-25
LO 3 Distinguish between the methods and bases companies use to value accounts receivable.
Chapter 9-26
of cash.
and costly.
Chapter 9-27
Chapter 9-28
($680,000 x 3% = $20,400)
Cash 659,600
20,400
680,000
Chapter 9-30
($3,800 x 4% = $152)
Cash 3,648
152
3,800
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 9-33
Notes Receivable
Determining the Maturity Date
Note expressed in terms of Months Days
Computing Interest
Illustration 9-13
Chapter 9-34
Nov. 1
Notes receivable
15,000
15,000 6,750
Sales
Dec. 16 Notes receivable Accounts receivable
Chapter 9-36
6,750
4,000 4,000
295
Interest revenue
295
Chapter 9-37
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 9-38
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 9-39
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
A dishonored note is not paid in full at maturity. Dishonored note receivable is no longer negotiable.
Chapter 9-40
Notes Receivable
E9-13 On May 2, Kleinsorge Company lends $7,600 to Everhart, Inc., issuing a 6-month, 9% note. At the maturity date, November 2, Everhart indicates that it cannot pay. Instructions (a) Prepare the entry to record the issuance of the note.
(b) Prepare the entry to record the dishonor of the note, assuming that Kleinsorge Company expects collection will occur. (c) Prepare the entry to record the dishonor of the note, assuming that Kleinsorge Company does not expect collection in the future.
Chapter 9-41
Notes Receivable
E9-13 (a) Prepare the entry to record the issuance of the note. (b) Prepare the entry to record the dishonor of the note, assuming that Kleinsorge Company expects collection will occur.
(a) (b)
7,600 7,600
Accounts receivable
Notes receivable Interest revenue
Chapter 9-42
7,942
7,600 342
Notes Receivable
E9-13 (c) Prepare the entry to record the dishonor of the note, assuming that Kleinsorge Company does not expect collection in the future.
(c)
7,600 7,600
When there is no hope of collection, the note holder would write off the face value of the note. No interest revenue would be recorded because collection will not occur.
Chapter 9-43
I/S
Chapter 9-44
Measure the number of times, on average, a company collects receivables during the period.
Chapter 9-45
Variant of the accounts receivable turnover ratio is average collection period in terms of days.
Used to assess effectiveness of credit and collection policies.
Copyright
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 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.
Chapter 9-47