Weygandt Accounting Principles 10e PowerPoint Ch09

8/9/2019 Weygandt Accounting Principles 10e PowerPoint Ch09

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CHAPTER9Accounting forReceivables


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PreviewofCHAPTER9


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Amounts due from individuals and other companies that areexpected to be collected in cash.

Amounts owed by

customers thatresult from the sale

of goods and

services.

AccountsAccounts

ReceivableReceivable

AccountsAccounts


SO 1 Identify the different types of receivables.SO 1 Identify the different types of receivables.

Claims for which

formal instrumentsof credit are issued

as proof of debt.

Nontrade (interest,

loans to officers,advances to

employees, and

income taxes

refundable.

NotesNotes


NotesNotes

ReceivableReceivableOtherOther

ReceivablesReceivables

OtherOther

ReceivablesReceivables

Types of Receivables


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Amounts due from individuals and other companies that areexpected to be collected in cash.

SO 1 Identify the different types of receivables.SO 1 Identify the different types of receivables.

llustration 9-1

Types of Receivables


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llustration" Assume that "ordache Co. on "uly #, $%#$, sellsmerchandise on account to &olo Company for '#,%%% terms

$#%, n)%. &repare the *ournal entry to record this transaction

on the boo+s of "ordache Co.

Accounts receivable #,%%%+ul# 1

ales revenue #,%%%

Accounts Receivables

SO 2 Explain how companies recognize accounts receivable.SO 2 Explain how companies recognize accounts receivable.


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llustration" -n "uly , &olo returns merchandise worth '#%%to "ordache Co.

ales returns and allowances #%%+ul# 5

Accounts receivable #%%

llustration" -n "uly ##, "ordache receives payment from

&olo Company for the balance due.

Cash //$+ul# 11

ales discounts ('0%% x .%$ #/

Accounts receivable 0%%


SO 2 Explain how companies recognize accounts receivable.SO 2 Explain how companies recognize accounts receivable.


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"aluing !ccounts eceivables Current asset.

1aluation (net reali2able value.

.ncollectible Accounts Receivable

ales on account raise the possibility of accounts not

being collected.

eller records losses that result from extending credit as

/a) &ebts 0pense.

SO # $istinguish between the methods and basesSO # $istinguish between the methods and basescompanies use to value accounts receivable.companies use to value accounts receivable.



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Alloance (etho)Alloance (etho)

osses are estiate)"

3etter matching.

4eceivable stated at cash

reali2able value. 4e5uired by 6AA&.

(etho)s of Accounting for .ncollectible Accounts

&irect rite-Off&irect rite-Off

Theoretically un)esirable"

No matching.

4eceivable not stated at

cash reali2able value. Not acceptable for

financial reporting.




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7ow are these accounts presented on the 3alance heet87ow are these accounts presented on the 3alance heet8

Accounts ReceivableAlloance for

&oubtful Accounts

/eg# 5 25 /eg#

0n)# 5 25 0n)#



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Accounts Receivables Alternate&resentation


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&oubtful Accounts

/eg# 5 25 /eg#

0n)# 5 25 0n)#


+ournal entry for cre)it sale of 617+ournal entry for cre)it sale of 617

Accounts receivableAccounts receivable #%%#%%

alesales #%%#%%


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&oubtful Accounts

/eg# 5 25 /eg#

0n)# ! 25 0n)#


+ournal entry for cre)it sale of 617+ournal entry for cre)it sale of 617

Accounts receivableAccounts receivable #%%#%%

alesales #%%#%%

'ale 1


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&oubtful Accounts

/eg# 5 25 /eg#

0n)# ! 25 0n)#

'ale 1


8ollecte) 6333 on account78ollecte) 6333 on account7

CashCash ))))))

Accounts receivableAccounts receivable ))))))


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&oubtful Accounts

/eg# 5 25 /eg#

0n)# 2!* 25 0n)#

'ale 1


8ollecte) 6333 on account78ollecte) 6333 on account7

CashCash ))))))

Accounts receivableAccounts receivable ))))))

333 8oll#


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&oubtful Accounts

/eg# 5 25 /eg#

0n)# 2!* 25 0n)#

'ale 1 333 8oll#


A)ustent of 615 for estiate) ba) )ebts7A)ustent of 615 for estiate) ba) )ebts7

3ad debt expense3ad debt expense ##

Allowance for 9oubtful AccountsAllowance for 9oubtful Accounts ##


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&oubtful Accounts

/eg# 5 25 /eg#

0n)# 2!* 4 0n)#

'ale 1 333 8oll#


A)ustent of 615 for estiate) ba) )ebts7A)ustent of 615 for estiate) ba) )ebts7

3ad debt expense3ad debt expense ##

Allowance for 9oubtful AccountsAllowance for 9oubtful Accounts ##

15 0st#


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&oubtful Accounts

/eg# 5 25 /eg#

0n)# 2!* 4 0n)#

'ale 1 333 8oll# 15 0st#


rite-off of uncollectible accounts for 617rite-off of uncollectible accounts for 617

Allowance for 9oubtful accountsAllowance for 9oubtful accounts #%#%

Accounts receivableAccounts receivable #%#%


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&oubtful Accounts

/eg# 5 25 /eg#

0n)# 25* 3 0n)#

'ale 1 333 8oll# 15 0st#


rite-off of uncollectible accounts for 617rite-off of uncollectible accounts for 617

Allowance for 9oubtful accountsAllowance for 9oubtful accounts #%#%

Accounts receivableAccounts receivable #%#%

:O 11 :O


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llustration"Assume that :arden Co. writes off ;.


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Alloance (etho) for .ncollectible Accounts#. Companies estiateuncollectible accounts

receivable.

$. 9ebit /a) &ebts 0penseand credit Alloance for&oubtful Accounts(a contra!asset account.

). Companies debit Alloance for &oubtful Accounts

and credit Accounts Receivableat the time thespecific account is ritten offas uncollectible.




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llustration" 7ampson ?urniture has credit sales of'#,$%%,%%% in $%#$, of which '$%%,%%% remains uncollected at

9ecember )#. @he credit manager estimates that '#$,%%% of

these sales will prove uncollectible.

3ad debts expense #$,%%%&ec# 31

Allowance for doubtful accounts #$,%%%




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llustration 9-3&resentation of allowancefor doubtful accounts




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llustration" @he vice!president of finance of 7ampson ?urniture on

;arch #, $%#), authori2es a write!off of the '%% balance owed by

4. A. :are. @he entry to record the write!off is>

Allowance for doubtful accounts %%(ar# 1

Accounts receivable %%

Recor)ing rite-Off of an .ncollectible Account

llustration 9-4




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1

+uly 1

llustration" -n "uly #, 4. A. :are pays the '%% amount that

7ampson had written off on ;arch #. 7ampson ma+es these

entries>

Accounts receivable %%

Allowance for doubtful accounts %%

Recovery of an .ncollectible Account

Cash %%Accounts receivable %%




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9-3 SO # $istinguish between the methods and basesSO # $istinguish between the methods and basescompanies use to value accounts receivable.companies use to value accounts receivable.

llustration 9-!


0stiating the Alloance


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;anagement estimates

what percentage of credit

sales will be uncollectible.@his percentage is based

on past experience and

anticipated credit policy.




llustration 9-!


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llustration" Assume that 6on2ale2 Company elects to use

the percentage!of!sales basis. t concludes that #B of net credit

sales will become uncollectible. f net credit sales for $%#$ are

'/%%,%%%, the ad*usting entry is>


3ad debts expense /,%%%&ec# 31

Allowance for doubtful accounts /,%%%

%ercentage&of&Sales

;'/%%,%%% x #B

;



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;anagement establishes a

percentage relationship

between the amount ofreceivables and expected

losses from uncollectible

accounts.




llustration 9-!


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llustration 9-,

Aging the accounts receivable ! customer balances are

classified by the length of time they have been unpaid.




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llustration" Assume the unad*usted trial balance shows Allowance

for 9oubtful Accounts with a credit balance of '$/. &repare the

ad*usting entry assuming '$,$$/ is the estimate of uncollectible

receivables from the aging schedule.

3ad debts expense #,%%&ec# 31

Allowance for doubtful accounts #,%%

llustration 9-*/a) )ebts accountsafter posting



SO #SO #


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8opanies sell receivables for to aor reasons#

#. 4eceivables may be the only reasonable source

of cash.

$. 3illing and collection are often time!consuming

and costly.

SO ' $escribe the entries to record the disposition of accounts receivable.SO ' $escribe the entries to record the disposition of accounts receivable.

$isposing of !ccounts eceivables



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llustration"llustration" AAssume that 7endredon ?urniture factors'D%%,%%% of receivables to ?ederal ?actors. ?ederal ?actors

assesses a service charge of $B of the amount of receivables

sold. @he *ournal entry to record the sale by 7endredon ?urniture

is as follows.

SO ' $escribe the entries to record the disposition of accounts receivable.SO ' $escribe the entries to record the disposition of accounts receivable.

Accounts receivable D%%,%%%

Cash //,%%%

ervice charge expense #$,%%%

('D%%,%%% x $B E '#$,%%%



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9-4 SO ' $escribe the entries to record the disposition of accounts receivable.SO ' $escribe the entries to record the disposition of accounts receivable.

4ecorded the same as cash sales.

4etailer pays card issuer a fee of $ to DB for processing

the transactions.


8re)it 8ar) 'ales


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9-41 SO ' $escribe the entries to record the disposition of accounts receivable.SO ' $escribe the entries to record the disposition of accounts receivable.

llustration"llustration" Anita ?erreri purchases '#,%%% of compact discsfor her restaurant from Faren Ferr ;usic Co., using her 1isa

?irst 3an+ Card. ?irst 3an+ charges a service fee of )B. @he

entry to record this transaction by Faren Ferr ;usic is as follows.

ales revenue #,%%%

Cash 0%

ervice charge expense )%



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Companies may grant credit in exchange for a promissorynote. A proissory noteis a written promise to pay a

specified amount of money on demand or at a definite time.

&romissory notes may be used

#. when individuals and companies lend or borrow money,

$. when amount of transaction and credit period exceed

normal limits, or

). in settlement of accounts receivable.

Notes Receivables


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llustration 9-11

@o the =ayee, the promissory note is a note receivable.@o the (a>er, the promissory note is a note payable.

Notes Receivables


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9-45 SO ( )ompute the maturity date of and interest on notes receivable.SO ( )ompute the maturity date of and interest on notes receivable.

Note expressed in terms of

;onths

9ays

)omputing Interestllustration 9-14

$etermining the *aturity $ate

Notes Receivables


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hen counting )ays, oitthe date the note is issued,

but inclu)ethe due date.

llustration 9-15

)omputing Interest

Notes Receivables

SO ( )ompute the maturity date of and interest on notes receivable.SO ( )ompute the maturity date of and interest on notes receivable.


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llustration" Calhoun Company wrote a '#,%%%, two!month,

#$B promissory note dated ;ay #, to settle an open account.

&repare entry would :ilma Company ma+es for the receipt of

the note.

Notes receivable #,%%%(ay 1

Accounts receivable #,%%%

ecognizing +otes eceivable

Notes Receivables

SO , Explain how companies recognize notes receivable.SO , Explain how companies recognize notes receivable.


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onor of Notes Receivable

SO $escribe the entries to record the disposition of notes receivable.SO $escribe the entries to record the disposition of notes receivable.

;a+er pays it in full at its maturity date.

&ishonor of Notes Receivable

Not paid in full at maturity.

No longer negotiable.

Notes Receivables

$isposing of +otes eceivable


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llustration" :older Co. lends 7igley Co. '#%,%%% on "une #,

accepting a five!month, 0B interest note. f :older presents the

note to 7igley Co. on November #, the maturity date, :older=s

entry to record the collection is>

onor of Notes Receivable

SO $escribe the entries to record the disposition of notes receivable.SO $escribe the entries to record the disposition of notes receivable.

Cash #%,)Nov# 1

Notes receivable #%,%%%

nterest revenue )

('#%,%%% x 0B x #$ E ' )

Notes Receivables


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9-53 SO $escribe the entries to record the disposition of notes receivable.SO $escribe the entries to record the disposition of notes receivable.

nterest receivable )%%'ept# 1

nterest revenue )%%

('#%,%%% x 0B x G#$ E ' )%%

llustration 9-1!

Notes Receivables

Accrual of nterest Receivablellustration" uppose instead that :older Co. prepares financial

statements as of eptember )%. @he ad*usting entry by :older is

for four months ending ept. )%.


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Cash #%,)Nov# 1Notes receivable #%,%%%

nterest receivable )%%

nterest revenue

Notes Receivables

Accrual of nterest Receivablellustration" &repare the entry :older=s would ma+e to record

the honoring of the 7igley note on November #.


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Accounts receivable #%,)Nov# 1

Notes receivable #%,%%%

nterest revenue )

Notes Receivables

&ishonor of Notes Receivablellustration" Assume that 7igley Co. on November # indicates

that it cannot pay at the present time. f :older Co. does expect

eventual collection, it would ma+e the following entry at the time

the note is dishonored (assuming no previous accrual of interest.


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%resentation dentify in the balance sheet or in the notes each ma*or

type of receivable.

4eport short!term receivables as current assets.

4eport both gross amount of receivables and allowance

for doubtful account.

4eport bad debts expense and service charge expense

as selling expenses.

4eport interest revenue under -ther revenues and

gains.

/:'

:'

'tateent =resentation an) Analysis

SO / Explain the statement presentation and analysis of receivables.SO / Explain the statement presentation and analysis of receivables.


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!nalysis

llustration 9-1*



llustration" n $%%0 Cisco ystems had net sales of '$0,#)#

million for the year. t had a beginning accounts receivable (net

balance of '),/$# million and an ending accounts receivable (net

balance of '),# million. Assuming that Cisco=s sales wereall on credit, its accounts receivable turnover ratio is computed as

follows.


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!nalysis

llustration 9-1,



llustration" 1ariant of the accounts receivable turnover ratio is

average collection period in terms of days.llustration 9-1*


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Bey =oints


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Bey =oints


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.n)er


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hich of the folloing stateents is false7

a@ oans an) receivables inclu)e eCuity securities

purchase) by the copany#

b@ oans an) receivables inclu)e cre)it car) receivables#

c@ oans an) receivables inclu)e aounts oe) by

eployees as a result of copany loans to eployees#

)@ oans an) receivables inclu)e aounts resulting fro

transactions ith custoers#


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