Receivable 01
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  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee
  • Chapter 7: Reporting & Analyzing Receivables & Investments February 28, 2012 Dr. Fred Barbee

Receivable 01 Receivable 01 Presentation Transcript

  • ACCOUNTING FOR RECEIVABLES Lecture 5
  • Receivables Receivables Current receivables Noncurrent receivables Receivable- claims expected to be collected in cash from customers and others for service or goods sold on account. For reporting purpose
  • Receivables Trade receivables Nontrade receivables Account receivable Notes receivable Other receivables
  • ACCOUNTS RECEIVABLE . . .
    • Accounts Receivable are . . .
      • Short-term, liquid assets that arise from credit sales to customers.
      • Are usually converted to cash within 10 to 60 days.
    • Notes Receivable — used to grant credit on the basis of a formal instrument of credit, called a promissory note.
    • Other Receivables — include interest receivable, taxes receivable, and receivables from officers and employees.
  • ACCOUNTS RECEIVABLE . . .
    • There are three primary problems associated with Receivables . . .
      • Recognition
      • Valuation
      • Disposition
  • Recognition
  • RECOGNIZING ACCOUNTS RECEIVABLE Discounts Trade discounts Cash discounts
  • RECOGNIZING ACCOUNTS RECEIVABLE Trade discounts- percentage reduction from the list price Cash discounts – reductions not in the selling price of good or service, but in the amount to be paid by a credit customer if paid within a specified period of time. It is discount intended to provide incentive for quick payment
  • RECOGNIZING ACCOUNTS RECEIVABLE The amount of the discount and time period within which it’s available usually are conveyed by cryptic terms like 2/10, n/30 This terms meaning a 2% discount if paid within 10 days, otherwise full payment within 30 days.
  • RECOGNIZING ACCOUNTS RECEIVABLE Æèøýý íü : 5 ñàðûí 15-íä 2/10, n/20 ãýñýí íºõöºëòýéãýýð 200000 ₮ -èéí ¿íýòýé áàðààã áîðëóóëñàí. Õóäàëäàí àâàã÷ 5.22-íä 120000 ₮ , 5.27-íä ¿ëäýãäýë òºëáºðèéã òóñ òóñ ã¿éöýòãýâ.   Two ways to record cash discounts Gross method Net method
  • GROSS METHOD 5/15 Dt Accounts receivable 200,000 Ct Sales revenue 200,000 5/22 Dt Cash 117,600 Dt Sales discount 2,400 Ct Accounts receivable 120,000 5/27 Dt Cash 80,000 Ct Accounts receivable 80,000
  • NET METHOD 5/15 Dt Accounts receivable 200,000 Ct Sales revenue 200,000 5/22 Dt Cash 117,600 Ct Accounts receivable 117,600 5/27 Dt Cash 80,000 Ct Accounts receivable 78,400 Ct Loss of sales discount 1,600
  • RECOGNIZING ACCOUNTS RECEIVABLE Loss of sales discount Income statement: Other income
  • TRADE DISCOUNTS Жишээ нь: “А” компани зээлээр борлуулалт хийсэн. Жагсаалтын үнэ 1500,000₮ Худалдааны хөнгөлөлт 10- 5- 2 Dt Accounts receivable 1256,850 Ct Sales revenue 1256,850
  • VALUING ACCOUNTS RECEIVABLE
    • They are stated at their net realizable value
    • Net realizable value is the net amount expected to be received in cash and excludes amounts that the company estimates it will not be able to collect.
  • ACCOUNTING FOR UNCOLLECTIBLE ACCOUNTS
    • There are two methods of accounting for Uncollectible Accounts . . .
      • The direct write-off method; and
      • The allowance method.
  • Direct Write-Off Method 1
    • On January 23, TechCom determines it cannot collect $520 from Jack Kent, a credit customer.
    Direct Write-Off Method
    • If Jack Kent later pays the $520, the previous entry is simply reversed and the cash collection is recorded.
    Direct Write-Off Method
  • Allowance Method Method 2
    • At the end of each period, estimate total bad debts expected to be realized from that period’s sales.
    This is a contra-asset account. Allowance Method
  • ESTIMATING BAD DEBTS EXPENSE
    • Percent of Sales Method
    • Percent of Accounts Receivable Methods
      • Based on Balance of Accounts Receivable Method
      • Aging of Accounts Receivable Method
  • Estimate the amount of uncollectible accounts. Then Credit the Allowance account Matching And Debit the Expense Account Based on: Sales Accts Rec xxx xxx or Allowance for Doubtful Accounts xxx Bad Debts Expense xxx
  • Percent of Sales Method Method 1
  • PERCENT OF SALES METHOD
    • Bad debts expense is computed as follows:
    • Estimated Bad Debts Expense= Current period sales * Bad debt %
  • PERCENT OF SALES METHOD
    • MusicLand has credit sales of $400,000 in 2011.
    • MusicLand estimates 6% of credit sales are uncollectible.
    • What is Bad Debts Expense for 2011?
  • Allowance Method $400,000 X 0.06% = $2,400 MusicLand computes estimated Bad Debts Expense of $2,400
  • Percent of Accounts Receivable Method Method 2
  • BASED ON BALANCE OF ACCOUNTS RECEIVABLE METHOD
    • Compute the estimate of the Allowance for Doubtful Accounts.
      • Year-End Accounts Receivable x Bad Debt %
    • Bad Debts Expense is computed as:
    • MusicLand has $50,000 in Accounts Receivable and a $200 credit balance in Allowance for Doubtful Accounts on December 31, 2011.
    • Past experience suggests that 5% of receivables are uncollectible.
    • What is MusicLand’s Bad Debt Expense for 2011.
  • Desired balance in Allowance for Doubtful Accounts. % of Accounts Receivable $50,000 X 0.05% = $2,500
  • AGING OF ACCOUNTS RECEIVABLE METHOD
    • Year-end Accounts Receivable is broken down into age classifications.
    • Compute a separate allowance for each age grouping.
    • Each age grouping has a different likelihood of being uncollectible.
  • AGING OF ACCOUNTS RECEIVABLE
  • AGING OF ACCOUNTS RECEIVABLE MusicLand’s unadjusted balance in the allowance account is $200. Per the previous computation, the desired balance is $2,330.
  • Disposition
  • WRITING OFF A BAD DEBT
    • With the allowance method, when an account is determined to be uncollectible, the debit is to Allowance for Doubtful Accounts .
    TechCom determines that Jack Kent’s $520 account is uncollectible.
  • RECOVERY OF A BAD DEBT
    • Subsequent collections require that the original write-off entry be reversed before the cash collection is recorded.
  • Exh. 7.13 % of Sales Emphasis on Matching Sales Bad Debts Exp. Income Statement Focus % of Receivables Emphasis on Realizable Value Accts. Rec. All. for Doubtful Accts. Balance Sheet Focus Aging of Receivables Emphasis on Realizable Value Accts. Rec. All. for Doubtful Accts. Balance Sheet Focus
  • ACCOUNTING IS FUN!