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

    1. 1. ACCOUNTING FOR RECEIVABLES Lecture 5
    2. 2. 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
    3. 3. Receivables Trade receivables Nontrade receivables Account receivable Notes receivable Other receivables
    4. 4. ACCOUNTS RECEIVABLE . . . <ul><li>Accounts Receivable are . . . </li></ul><ul><ul><li>Short-term, liquid assets that arise from credit sales to customers. </li></ul></ul><ul><ul><li>Are usually converted to cash within 10 to 60 days. </li></ul></ul>
    5. 5. <ul><li>Notes Receivable — used to grant credit on the basis of a formal instrument of credit, called a promissory note. </li></ul><ul><li>Other Receivables — include interest receivable, taxes receivable, and receivables from officers and employees. </li></ul>
    6. 6. ACCOUNTS RECEIVABLE . . . <ul><li>There are three primary problems associated with Receivables . . . </li></ul><ul><ul><li>Recognition </li></ul></ul><ul><ul><li>Valuation </li></ul></ul><ul><ul><li>Disposition </li></ul></ul>
    7. 7. Recognition
    8. 8. RECOGNIZING ACCOUNTS RECEIVABLE Discounts Trade discounts Cash discounts
    9. 9. 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
    10. 10. 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.
    11. 11. 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
    12. 12. 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
    13. 13. 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
    14. 14. RECOGNIZING ACCOUNTS RECEIVABLE Loss of sales discount Income statement: Other income
    15. 15. 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
    16. 16. VALUING ACCOUNTS RECEIVABLE <ul><li>They are stated at their net realizable value </li></ul><ul><li>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. </li></ul>
    17. 17. ACCOUNTING FOR UNCOLLECTIBLE ACCOUNTS <ul><li>There are two methods of accounting for Uncollectible Accounts . . . </li></ul><ul><ul><li>The direct write-off method; and </li></ul></ul><ul><ul><li>The allowance method. </li></ul></ul>
    18. 18. Direct Write-Off Method 1
    19. 19. <ul><li>On January 23, TechCom determines it cannot collect $520 from Jack Kent, a credit customer. </li></ul>Direct Write-Off Method
    20. 20. <ul><li>If Jack Kent later pays the $520, the previous entry is simply reversed and the cash collection is recorded. </li></ul>Direct Write-Off Method
    21. 21. Allowance Method Method 2
    22. 22. <ul><li>At the end of each period, estimate total bad debts expected to be realized from that period’s sales. </li></ul>This is a contra-asset account. Allowance Method
    23. 23. ESTIMATING BAD DEBTS EXPENSE <ul><li>Percent of Sales Method </li></ul><ul><li>Percent of Accounts Receivable Methods </li></ul><ul><ul><li>Based on Balance of Accounts Receivable Method </li></ul></ul><ul><ul><li>Aging of Accounts Receivable Method </li></ul></ul>
    24. 24. 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
    25. 25. Percent of Sales Method Method 1
    26. 26. PERCENT OF SALES METHOD <ul><li>Bad debts expense is computed as follows: </li></ul><ul><li>Estimated Bad Debts Expense= Current period sales * Bad debt % </li></ul>
    27. 27. PERCENT OF SALES METHOD <ul><li>MusicLand has credit sales of $400,000 in 2011. </li></ul><ul><li>MusicLand estimates 6% of credit sales are uncollectible. </li></ul><ul><li>What is Bad Debts Expense for 2011? </li></ul>
    28. 28. Allowance Method $400,000 X 0.06% = $2,400 MusicLand computes estimated Bad Debts Expense of $2,400
    29. 29. Percent of Accounts Receivable Method Method 2
    30. 30. BASED ON BALANCE OF ACCOUNTS RECEIVABLE METHOD <ul><li>Compute the estimate of the Allowance for Doubtful Accounts. </li></ul><ul><ul><li>Year-End Accounts Receivable x Bad Debt % </li></ul></ul>
    31. 31. <ul><li>Bad Debts Expense is computed as: </li></ul>
    32. 32. <ul><li>MusicLand has $50,000 in Accounts Receivable and a $200 credit balance in Allowance for Doubtful Accounts on December 31, 2011. </li></ul><ul><li>Past experience suggests that 5% of receivables are uncollectible. </li></ul><ul><li>What is MusicLand’s Bad Debt Expense for 2011. </li></ul>
    33. 33. Desired balance in Allowance for Doubtful Accounts. % of Accounts Receivable $50,000 X 0.05% = $2,500
    34. 34. AGING OF ACCOUNTS RECEIVABLE METHOD <ul><li>Year-end Accounts Receivable is broken down into age classifications. </li></ul><ul><li>Compute a separate allowance for each age grouping. </li></ul><ul><li>Each age grouping has a different likelihood of being uncollectible. </li></ul>
    35. 35. AGING OF ACCOUNTS RECEIVABLE
    36. 36. AGING OF ACCOUNTS RECEIVABLE MusicLand’s unadjusted balance in the allowance account is $200. Per the previous computation, the desired balance is $2,330.
    37. 37. Disposition
    38. 38. WRITING OFF A BAD DEBT <ul><li>With the allowance method, when an account is determined to be uncollectible, the debit is to Allowance for Doubtful Accounts . </li></ul>TechCom determines that Jack Kent’s $520 account is uncollectible.
    39. 39. RECOVERY OF A BAD DEBT <ul><li>Subsequent collections require that the original write-off entry be reversed before the cash collection is recorded. </li></ul>
    40. 40. 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
    41. 41. ACCOUNTING IS FUN!

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