chapter 9-1. chapter 9-2 accounting for receivables accounting principles, eighth edition chapter 9
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Chapter 9-1
Chapter 9-2
ACCOUNTING FOR ACCOUNTING FOR RECEIVABLESRECEIVABLES
Accounting Principles, Eighth Edition
CHAPTERCHAPTER 99CHAPTERCHAPTER 99
Chapter 9-3
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.
Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives
Chapter 9-4
Types of Types of
ReceivablesReceivablesTypes of Types of
ReceivablesReceivables
Accounts Accounts receivablereceivable
Notes Notes receivablereceivable
Other Other receivablesreceivables
Accounts Accounts
ReceivableReceivableAccounts Accounts
ReceivableReceivableNotes Notes
ReceivableReceivableNotes Notes
ReceivableReceivable
Statement Statement
Presentation Presentation
and Analysisand Analysis
Statement Statement
Presentation Presentation
and Analysisand Analysis
PresentationPresentation
AnalysisAnalysis
Determining Determining maturity datematurity date
Computing Computing interestinterest
Recognizing Recognizing notes notes receivablereceivable
Valuing notes Valuing notes receivablereceivable
Disposing of Disposing of notes notes receivablereceivable
Accounting for ReceivablesAccounting for ReceivablesAccounting for ReceivablesAccounting for Receivables
Recognizing Recognizing accounts accounts receivablereceivable
Valuing Valuing accounts accounts receivablereceivable
Disposing of Disposing of accounts accounts receivablereceivable
Chapter 9-5
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 Accounts ReceivableReceivableAccounts Accounts
ReceivableReceivable
Types of ReceivablesTypes of ReceivablesTypes of ReceivablesTypes of Receivables
LO 1 Identify the different types of receivables.LO 1 Identify the different types of receivables.
Claims for which formal
instruments of credit are
issuedas proof of debt.
“Nontrade” (interest, loans to officers, advances
to employees, and income taxes
refundable).
Notes Notes ReceivableReceivable
Notes Notes ReceivableReceivable
Other Other ReceivableReceivable
ss
Other Other ReceivableReceivable
ss
Chapter 9-6
Three accounting issues:
1. Recognizing accounts receivable.
2. Valuing accounts receivable.
3. Disposing of accounts receivable.
Accounts ReceivableAccounts ReceivableAccounts ReceivableAccounts Receivable
LO 1 Identify the different types of receivables.LO 1 Identify the different types of receivables.
The following exercise was illustrated in Chapter 5. For simplicity, inventory and cost of goods sold have been omitted.
Recognizing Accounts Receivable
Chapter 9-7
E5-5E5-5 Presented are transactions related to Wheeler Company.
1. On December 3,Wheeler Company sold $500,000 of merchandise to Hashmi Co., terms 2/10, n/30, FOB shipping point.
2. On December 8, Hashmi Co. was granted an allowance of $27,000 for merchandise purchased on December 3.
3. On December 13,Wheeler Company received the balance due from Hashmi Co.
Instructions: Prepare the journal entries to record these transactions on the books of Wheeler Company using a perpetual inventory system.
Recognizing Accounts ReceivableRecognizing Accounts ReceivableRecognizing Accounts ReceivableRecognizing Accounts Receivable
LO 2 Explain how companies recognize accounts receivable.LO 2 Explain how companies recognize accounts receivable.
Chapter 9-8
E5-5E5-5 Prepare the journal entries for Wheeler Company .
1. On December 3, Wheeler Company sold $500,000 of merchandise to Hashmi Co., terms 2/10, n/30, FOB shipping point.
Accounts receivable 500,000Dec. 3
Sales500,000
LO 2 Explain how companies recognize accounts receivable.LO 2 Explain how companies recognize accounts receivable.
Recognizing Accounts ReceivableRecognizing Accounts ReceivableRecognizing Accounts ReceivableRecognizing Accounts Receivable
Chapter 9-9
E5-5E5-5 Prepare the journal entries for Wheeler Company.
2. On December 8, Hashmi Co. was granted an allowance of $27,000 for merchandise purchased on December 3.
Sales returns and allowances 27,000Dec. 8
Accounts receivable27,000
LO 2 Explain how companies recognize accounts receivable.LO 2 Explain how companies recognize accounts receivable.
Recognizing Accounts ReceivableRecognizing Accounts ReceivableRecognizing Accounts ReceivableRecognizing Accounts Receivable
Chapter 9-10
E5-5E5-5 Prepare the journal entries for Wheeler Company .
3. On December 13, Wheeler Company received the balance due from Hashmi Co.
Cash 463,540Dec. 13
Accounts receivable473,000
Sales discounts 9,460
** [($500,000 – $27,000) X 2%]
**
* ($500,000 – $27,000)
*
***
*** ($473,000 – $9,460)
LO 2 Explain how companies recognize accounts receivable.LO 2 Explain how companies recognize accounts receivable.
Recognizing Accounts ReceivableRecognizing Accounts ReceivableRecognizing Accounts ReceivableRecognizing Accounts Receivable
Chapter 9-11
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.
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Accounts ReceivableAccounts ReceivableAccounts ReceivableAccounts Receivable
Chapter 9-12
Allowance MethodAllowance MethodLosses are estimated:
better matching.receivable stated at net realizable value.required by GAAP.
Methods of Accounting for Uncollectible Accounts
Direct Write-OffDirect Write-OffTheoretically
undesirable:no matching.receivable not stated at net realizable value.not acceptable for financial reporting.
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Chapter 9-13
AssetsAssets
Current Assets:Current Assets:
CashCash $ 346$ 346
Accounts receivableAccounts receivable 500500
Less: Allowance for doubtful accountsLess: Allowance for doubtful accounts 25 25 475 475
Merchandise inventory Merchandise inventory 812 812
Prepaid expensesPrepaid expenses 4040
Total current assetsTotal current assets 1,6731,673
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Presentation of Accounts ReceivablePresentation of Accounts ReceivablePresentation of Accounts ReceivablePresentation of Accounts Receivable
Chapter 9-14
AssetsAssets
Current Assets:Current Assets:
CashCash $ 346$ 346
Accounts receivable, net of $25 allowanceAccounts receivable, net of $25 allowance
for doubtful accountsfor doubtful accounts 475 475
Merchandise inventory Merchandise inventory 812 812
Prepaid expensesPrepaid expenses 4040
Total current assetsTotal current assets 1,6731,673
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Presentation of Accounts ReceivablePresentation of Accounts ReceivablePresentation of Accounts ReceivablePresentation of Accounts Receivable
Chapter 9-15
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
Allowance Method for Uncollectible Accounts
1. Companies estimate uncollectible accounts receivable.
2. To record estimated uncollectibles, companies debit Bad Debts Expense and credit Allowance for Doubtful Accounts (a contra-asset account).
3. When companies write off specific uncollectible accounts, they debit Allowance for Doubtful Accounts and credit Accounts Receivable.
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Chapter 9-16
E9-6E9-6 On December 31, 2008, Jarnigan Co. estimated that 2% of its net sales of $400,000 will become uncollectible. The company recorded this amount as an addition to Allowance for Doubtful Accounts. On May 11, 2009, Jarnigan Co. determined that Terry Frye’s account was uncollectible and wrote off $1,100. On June 12, 2009, Frye paid the amount previously written off.
Instructions
Prepare the journal entries on December 31, 2008, May 11, 2009, and June 12, 2009.
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Chapter 9-17
E9-6E9-6 Prepare the journal entries on December 31, 2008, May 11, 2009, and June 12, 2009.
Bad debt expense 8,000
December 31 ($400,000 x 2% = 8,000)
Allowance for doubtful accounts 8,000
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Chapter 9-18
E9-6E9-6 Prepare the journal entries on December 31, 2008, May 11, 2009, and June 12, 2009.
Accounts receivable 1,100June 12 (recovery)
Allowance for doubtful accounts 1,100
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Cash 1,100Accounts receivable
1,100
Allowance for doubtful accounts 1,100
May 11 (write-off)
Accounts receivable1,100
Chapter 9-19
Bases Used for Allowance Method
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
Illustration 9-5
Chapter 9-20
Example DataExample Data
Credit salesCredit sales $500,000 $500,000
Estimated % of credit sales uncollectibleEstimated % of credit sales uncollectible1.25% 1.25%
Accounts receivable balance Accounts receivable balance $72,500 $72,500
Estimated % of A/R not collected Estimated % of A/R not collected 8% 8%
Unadjusted balance in Allowance for Doubtful Accounts:Unadjusted balance in Allowance for Doubtful Accounts:
Case 1Case 1 $150 (credit balance)$150 (credit balance)
Case 2 Case 2 $150 (debit balance)$150 (debit balance)
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
Chapter 9-21
Credit salesCredit sales $500,000$500,000
Estimated percentage uncollectibleEstimated percentage uncollectible 1.25% 1.25%
Estimated bad debt expenseEstimated bad debt expense $ 6,250$ 6,250
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
Percentage of Sales – disregards the existing balance in Allowance for Doubtful Accounts
Journal entry:Bad debt expense 6,250
Allowance for doubtful accounts 6,250
Chapter 9-22
Actual balance (credit) (150) 150
Estimated uncollectible (6,250) (6,250)
Ending balance
(6,400) (6,100)
Case 1 Case 2
Percentage of Sales
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
The Allowance for Doubtful Accounts has an ending balance of $6,400 in Case 1 and $6,100
in Case 2.
Chapter 9-23
Accounts receivableAccounts receivable $ 72,500$ 72,500
Estimated percentage uncollectibleEstimated percentage uncollectible x 8%x 8%
Required balance in allowance accountRequired balance in allowance account $ 5,800$ 5,800
======================================================================================================
What will be the amount of the adjusting entry?What will be the amount of the adjusting entry?
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
Percentage of Receivables
Chapter 9-24
Actual balance (credit) (150) 150
Desired balance
(5,800) (5,800)
Adjustment (5,650) (5,950)
Journal entry – Case 1:
Case 1 Case 2
Percentage of Receivables
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
Allowance for doubtful accounts
5,650
Bad debt expense 5,650
Chapter 9-25
Actual balance (credit) (150) 150
Desired balance
(5,800) (5,800)
Adjustment (5,650) (5,950)
Journal entry – Case 2:
Allowance for doubtful accounts
5,950
Bad debt expense 5,950
Case 1 Case 2
Percentage of Receivables
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
Chapter 9-26
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.
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
Illustration 9-7
Chapter 9-27
Percentage of Sales approach:
Summary
Focus on “Bad debt expense” estimate, any balance in the allowance account is ignored.
Method achieves a matching of cost and revenues.
Percentage of Receivables approach:Accurate valuation of receivables on the balance sheet.
Method may also be applied using an aging schedule.
LO 3 Distinguish between the methods and LO 3 Distinguish between the methods and bases companies use to value accounts bases companies use to value accounts
receivable.receivable.
Valuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts ReceivableValuing Accounts Receivable
Chapter 9-28
Companies sell receivables for two major reasons.
1. Receivables may be the only reasonable source of cash.
2. Billing and collection are often time-consuming and costly.
LO 4 Describe the entries to record the disposition of accounts LO 4 Describe the entries to record the disposition of accounts receivable.receivable.
Disposing of Accounts ReceivableDisposing of Accounts ReceivableDisposing of Accounts ReceivableDisposing of Accounts Receivable
Chapter 9-29 LO 4 Describe the entries to record the disposition of accounts LO 4 Describe the entries to record the disposition of accounts
receivable.receivable.
Disposing of Accounts ReceivableDisposing of Accounts ReceivableDisposing of Accounts ReceivableDisposing of Accounts Receivable
Sale of ReceivablesA factor buys receivables from businesses and then collects the payments directly from the customers.
Typically the factor charges a commission to the company that is selling the receivables.
The fee ranges from 1-3% of the amount of receivables purchased.
Chapter 9-30
E9-7E9-7 (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 to record the sale of the receivables.
LO 4 Describe the entries to record the disposition of accounts LO 4 Describe the entries to record the disposition of accounts receivable.receivable.
Disposing of Accounts ReceivableDisposing of Accounts ReceivableDisposing of Accounts ReceivableDisposing of Accounts Receivable
Accounts receivable
680,000
Cash 659,600
Service charge expense 20,400
($680,000 x 3% = $20,400)
Chapter 9-31 LO 4 Describe the entries to record the disposition of accounts LO 4 Describe the entries to record the disposition of accounts
receivable.receivable.
Disposing of Accounts ReceivableDisposing of Accounts ReceivableDisposing of Accounts ReceivableDisposing of Accounts Receivable
Credit Card Sales
Retailer considers credit card sales the same as cash sales.
Retailer must pay card issuer a fee of 2 to 4% for processing the transactions.
Retailer records the sale in a similar manner as checks deposited from cash sale.
Chapter 9-32
E9-7E9-7 (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.
LO 4 Describe the entries to record the disposition of accounts LO 4 Describe the entries to record the disposition of accounts receivable.receivable.
Disposing of Accounts ReceivableDisposing of Accounts ReceivableDisposing of Accounts ReceivableDisposing of Accounts Receivable
Sales
3,500
Cash 3,360
Service charge expense 140
($3,500 x 4% = $140)
Chapter 9-33 LO 5 Compute the maturity date of and interest on notes LO 5 Compute the maturity date of and interest on notes
receivable.receivable.
Notes ReceivableNotes ReceivableNotes ReceivableNotes 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 period exceed normal limits, or
3. in settlement of accounts receivable.
Chapter 9-34 LO 5 Compute the maturity date of and interest on notes LO 5 Compute the maturity date of and interest on notes
receivable.receivable.
Notes ReceivableNotes ReceivableNotes ReceivableNotes 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 9-35
Determining the Maturity Date
LO 5 Compute the maturity date of and interest on notes LO 5 Compute the maturity date of and interest on notes receivable.receivable.
Notes ReceivableNotes ReceivableNotes ReceivableNotes Receivable
Note expressed in terms of
Months
Days
Computing Interest Illustration 9-13
Chapter 9-36 LO 6 Explain how companies recognize notes receivable.LO 6 Explain how companies recognize notes receivable.
Recognizing Notes ReceivableRecognizing Notes ReceivableRecognizing Notes ReceivableRecognizing Notes Receivable
E9-10E9-10 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 1-year, 10% note.
Dec. 11 Sold goods to John Countryman, Inc., receiving a $6,750, 90-day, 8% note.
Dec. 16 Received a $4,000, 6-month, 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
E9-10 E9-10 Nov. 1 Loaned $15,000 cash to Sally Givens on a 1-year, 10% note. Dec. 11 Sold goods to John Countryman, Inc., receiving a $6,750, 90-day, 8% note. Dec. 16 Received a $4,000, 6-month, 9% note in exchange for Bob Reber’s outstanding accounts receivable.
Cash
15,000
Notes receivable 15,000Nov. 1
Sales
6,750
Notes receivable 6,750Dec. 11
Accounts receivable
4,000
Notes receivable 4,000Dec. 16
Recognizing Notes ReceivableRecognizing Notes ReceivableRecognizing Notes ReceivableRecognizing Notes Receivable
LO 6 Explain how companies recognize notes receivable.LO 6 Explain how companies recognize notes receivable.
Chapter 9-38
E9-10 E9-10 Dec. 31 Accrued interest revenue on all notes receivable.
Interest revenue
295
Interest receivable 295Dec. 31
Am ount Rate T im eG ivens note: 15,000$ x 10% x 60 / 360 = 250$ Countrym an note: 6,750 x 8% x 20 / 360 = 30 Reber note: 4,000 x 9% x 15 / 360 = 15
T otal accrued interest 295$
Recognizing Notes ReceivableRecognizing Notes ReceivableRecognizing Notes ReceivableRecognizing Notes Receivable
LO 6 Explain how companies recognize notes receivable.LO 6 Explain how companies recognize notes receivable.
Chapter 9-39
Valuing Notes Receivable
LO 7 Describe how companies value notes receivable.LO 7 Describe how companies value notes receivable.
Notes ReceivableNotes ReceivableNotes ReceivableNotes 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.
Chapter 9-40
Disposing of Notes Receivable
LO 8 Describe the entries to record the disposition of notes LO 8 Describe the entries to record the disposition of notes receivable.receivable.
Notes ReceivableNotes ReceivableNotes ReceivableNotes Receivable
1. Notes may be held to their maturity date.
2. Maker may default and payee must make an adjustment to the account.
3. Holder speeds up conversion to cash by selling the note receivable.
Chapter 9-41
Honor of Notes Receivable
LO 8 Describe the entries to record the disposition of notes LO 8 Describe the entries to record the disposition of notes receivable.receivable.
Notes ReceivableNotes ReceivableNotes ReceivableNotes 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.
A dishonored note receivable is no longer negotiable.
Disposing of Notes Receivable
Chapter 9-42
Notes ReceivableNotes ReceivableNotes ReceivableNotes Receivable
E9-13E9-13 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.
LO 8 Describe the entries to record the disposition of notes LO 8 Describe the entries to record the disposition of notes receivable.receivable.
Chapter 9-43
Notes ReceivableNotes ReceivableNotes ReceivableNotes Receivable
E9-13E9-13 (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.
LO 8 Describe the entries to record the disposition of notes LO 8 Describe the entries to record the disposition of notes receivable.receivable.
Cash
7,600
Notes receivable 7,600(a)
Notes receivable
7,600
Accounts receivable 7,942
(b)
Interest revenue
342
Interest = $7,600 x 9% x 6/12 = $342
Chapter 9-44
Notes ReceivableNotes ReceivableNotes ReceivableNotes Receivable
E9-13E9-13 (c) Prepare the entry to record the dishonor of the note, assuming that Kleinsorge Company does not expect collection in the future.
LO 8 Describe the entries to record the disposition of notes LO 8 Describe the entries to record the disposition of notes receivable.receivable.
Notes receivable
7,600
Allowance for doubtful accounts 7,600(c)
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 9-45
Presentation
LO 9 Explain the statement presentation and analysis of LO 9 Explain the statement presentation and analysis of receivables.receivables.
Statement Presentation and Statement Presentation and AnalysisAnalysisStatement Presentation and Statement Presentation and AnalysisAnalysis
Identify in the balance sheet or in the notes, each major type of receivable.
Report short-term receivables as current assets.
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 9-46
Analysis of Receivables
This Ratio used to:
Assess the liquidity of the receivables.
Measure the number of times, on average, a company collects receivables during the period.
LO 9 Explain the statement presentation and analysis of LO 9 Explain the statement presentation and analysis of receivables.receivables.
Statement Presentation and Statement Presentation and AnalysisAnalysisStatement Presentation and Statement Presentation and AnalysisAnalysis
Illustration 9-15
Chapter 9-47
Analysis of Receivables
Variant of the accounts receivable turnover ratio is average collection period in terms of days.
Used to assess effectiveness of credit and collection policies.
Collection period should not exceed credit term period.
LO 9 Explain the statement presentation and analysis of LO 9 Explain the statement presentation and analysis of receivables.receivables.
Statement Presentation and Statement Presentation and AnalysisAnalysisStatement Presentation and Statement Presentation and AnalysisAnalysis
Illustration 9-16
Chapter 9-48
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