Accounting For Recievables

1. Instructor: Dr. Ahmed Zaki
Principles of Accounting I - ACC 212.02
April 19th, 2014
Presenter: Phanara Mao
Accounting Principles :
Accounting For Receivables

2. Objectives
 Definition of Receivables
 Identify The Different Types of Receivables
 Explain How Company Recognize Receivables
 Methods and Bases Company Use To Value Account Receivables
 Record The Disposition of Account Receivables
 Determining Maturity date
 Computing The Interest On Note Receivables
 Describe The Statement Presentation and Analysis of Receivables

3. Definition of Receivables
 Receivables refer to the amount due from
individuals and other companies that are
expected to be collected in cash (Kieso,
D. W., & Weygandt, J. J. 2012).

4. Different Types of Receivables
 Account Receivables
 Amounts customers owe on account
 Note Receivables
 Claims for which lenders issue formal
instruments of credit as proof of debt
 Other Receivables refer to Nontrade
Receivables
 Interest Receivables
 Loan to company officers
 Advances to employees
 Income Taxes Refundable…

5. Account Receivables
Three Issues Associate With Account Receivables
1.Recognizing Accounts Receivable.
 Reporting or recording account receivables
1.Valuing Accounts Receivable.
 Counting
1.Disposing of accounts receivable.
 Cancelling account receivable when the cash is
received

6. Accounts Receivable
Recognizing Accounts Receivable
Ex1. Service organization
- Records a receivable when it provides service on account.
Ex2. Merchandiser
- Records accounts receivable at the point of sale of
merchandise on account.

7. Accounts Receivable
Practice Recognizing Accounts Receivable
Illustration1: Assume that ABC Company. on July 1,
2012, sells merchandise on account to ERV Company for
$10,000 terms 2/10, n/30. Prepare the journal entry to
record this transaction on the books of ABC Company.
Solution:
Date Description Dr. ($) Cr. ($)
July 01. Account receivable 10,000
Sales Revenue 10,000

8. Practice Recognizing Accounts Receivable
Illustration2: On July 5, ERV returns merchandise
worth $1000 to ABC Company.
Sales returns and allowances 1000Jul. 5
Accounts receivable 1000
Illustration3: On July 11, ABC Company
receives payment from ERV Company for the balance
due.
Cash 8820Jul. 11
Sales discounts ($9000 x .02) 180
Accounts receivable 9000
Accounts Receivable

9. Account Receivables
Valuing Account Receivables
There are two methods of accounting for uncollectible
accounts;
The allowances method
 No matching.
 Receivable not stated at cash realizable value.
 Not acceptable for financial reporting.
The direct write-off method
 Better matching.
 Receivable stated at cash realizable value.
 Required by GAAP.

10. Accounts Receivable
Disposing of Accounts Receivable
In the normal course of events, companies collect
accounts receivable in cash and remove the receivables
from the books.
Dr. Cash
Cr. Account Receivable

11. Note Receivables
Issues Associate With Notes Receivable
1.Determining Maturity Date
2.Computing Interest
3.Recognizing Notes Receivable.
 Reporting or recording notes receivable
1.Valuing Notes Receivable.
 Counting
1.Disposing of Notes Receivable.
 Cancelling notes receivable when the cash is
received

12. Note expressed in terms of
 Months
 Days
Ex. Gambit Stores accepts from Leonard Co. a $3,400, 90-day, 12%
note dated May 10 in settlement of Leonard’s overdue account. (a)
What is the maturity date of the note?
Determining the Maturity Date
Notes Receivables
Solution
(a) The maturity date is August 8, computed as follows.
Term of note: 90 days
May (31-10) 21
June 30
July 31 82
Maturity Date: August 8

13. Note Receivables
Computing The Interest On Note Receivables
I = P x R x T
I : Interest (Currency. Ex. $, …)
P: Face Value of Note (Currency. Ex. $, …)
R: Annual Interest Rate ( Percentages of 100)
T: Time Taken ( Years)
Ex. Notes Receivables Include the Following;
Date Maker Face Term Interest Rate
May 16. Baylor $ 6,000 60days 10%
May 25. Feltor $ 25,000 60days 09%
May 30. ERV $ 15,000 6 months 08%

14. Note Receivables
Computing The Interest On Note Receivables
Formula P x T x R = Interest
Date Maker Face Term Interest Rate
May 16. Baylor $ 6,000 60days 10% = a) $ 100
May 25. Feltor $ 25,000 60days 09% = b) $ 375
May 30. ERV $ 15,000 6 months 08% = c) $ 600
Computation
a). $ 6,000 x 60/360 x 10% = $ 100
b). $ 25,000 x 60/360 x 09% = $ 375
c). $ 15,000 x 6/12 x 08% = $ 600

15. Statement Presentation and Analysis of
Receivables
Presentation
 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.”

16. Analysis
Statement Presentation and Analysis
Illustration: In 2009 Cisco Systems had net sales of $29,131
million for the year. It had a beginning accounts receivable (net)
balance of $3,821 million and an ending accounts receivable (net)
balance of $3,177 million. Assuming that Cisco’s sales were
all on credit, its accounts receivable turnover ratio is computed as
follows.
Source: Kieso, D. W., & Weygandt, J. J. (2012). Study guide [to accompany] Accounting principles, 10th edition,
Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel. Hoboken, NJ: John Wiley &Sons.

17. Analysis
Statement Presentation and Analysis
Illustration: Variant of the accounts receivable turnover ratio is
average collection period in terms of days.
Source: Kieso, D. W., & Weygandt, J. J. (2012). Study guide [to accompany] Accounting principles,
10th edition, Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel. Hoboken, NJ: John Wiley &Sons.

18. References
Kieso, D. W., & Weygandt, J. J. (2012). Study guide
[to accompany] Accounting principles, 10th edition,
Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel.
Hoboken, NJ: John Wiley &Sons.
Zaki, A. (Director) (2014, May 19). Accounting For
Receivable . Accounting Principles 212.02. Lecture
conducted from Zaman University, Phnom Penh.

19. This is the time for
Questions.

20. Thank You!