Task 13:

What is the difference between accounts receivables and notes receivables?

Accounts receivable are amounts that customers owe the company for normal credit purchases.
Notes receivable are amounts owed to the company by customers or others who have signed formal
promissory notes in acknowledgment of their debts.

What are the two methods used in accounting for uncollectible accounts?
1. Direct write off method
2. Allowance method (estimation)

Make the necessary calculations and journal entries to record the events associated with the
accounts receivables, using these two methods.
Estimation = 7000*0,01+3000*0,05+2000*0,15 = €520
€520-€220=€300

Direct write off 2018:

Account Debit Credit
Accounts receivable 12,000  
Sales revenue   12,000
Bad debts expense 300  
Accounts receivable   300

Allowance method 2018:

Account Debit Credit
Accounts 12,000  
receivable
Sales revenue   12,000
Bad debts expense 520  
Allowance   520
Allowance 300  
Accounts   300
receivable

Direct write off 2019:

8400*0,01+4000*0,05+1700*0,15 = €539

Not possible.

Allowance method 2019:

Because the beginning balance of allowance was €220,- you only have to credit allowance by €319,-
because you overestimated last year’s allowance by €220,-.
Account Debit Credit
Accounts 14,100  
receivable
Sales revenue   14,100
Bad debts expense 319  
Allowance   319
Which method is preferred over the other one? Why?
Based on generally accepted accounting principles, the allowance method is preferred over the
direct method, because it better matches expenses with sales of the same period. For example the
income statement of January 2018 would be overstated with the direct write off method if the
debitor goes bankrupt in February and hasn’t paid yet.

The allowance method properly states the value for accounts receivable at all times.

Make the necessary calculations and journal entries to record the events associated with the notes
receivables.
11000*0,06*9/12 = €495

Date Account Debit Credit

1-4-2018 Notes receivable 11,000  
  Cash   11,000

Date Account Debit Credit

31-12- Interest receivable 495  
2018
  Interest revenue   495

Date Account Debit Credit

1-4-2019 Cash 11,000  
  Notes receivable   11,000
  Interest receivable 165  
  Interest revenue   165

Task 14:
a. Allowance based
b.
Account Debit Credit
Bad debts expense 10,750  
Allowance   10,750
c.
Account
Debit Credit
Bad debts expense 12,750  
Allowance   12,750
d.
Account
Debit Credit
Allowance 3,000  
Accounts
receivable   3,000
e.
Account
Debit Credit
Bad debts expense 3,000  
Accounts   3,000
 receivable
f. Contra account. It is a part of the statement of financial position.

Task 15:
Would you expect, ex ante, Ahold and Delhaize to have a significant amount of receivables? Looking
at the balance sheet amounts, are your expectations confirmed?
I would expect a lot of accounts receivables in their b2b transactions, but not that much in their b2c
transactions. They do have quite a lot of receivables.

How do Ahold and Delhaize determine their allowance for doubtful accounts? Refer to Note
17 for Ahold and Note 14 for Delhaize.
Delhaize: Calculated rate for aging–for major customers, there is an analyzed rate and for minor
groups, they are clustered to groups and assigned a rate.

Ahold: They have a provision for each time period, namely 2, 2, 2, and 14. This totals up to 20 of the
total.

How much is the allowance for doubtful accounts in 2015 for the two companies? How much was
utilized in 2015? Prepare the journal entries for the allowance for doubtful accounts and the write-
off of uncollectible accounts in 2015 for both companies.

Ahold:
Account Debit Credit 11 mil: released/changed to income (increased
Bad debts expense 11 mil   allowance)
Allowance   11 mil 11 mil: used (decreases allowance)

Account Debit Credit

Allowance 11 mil  
Accounts   11 mil
receivable

Delhaize:
Account Debit Credit
10 mil: addition (increases allowance)
Bad debts expense 10 mil  
4 mil: usage (decreases allowance)
Allowance   10 mil

Account Debit Credit

Allowance 4 mil  
Accounts   4 mil
receivable
Calculate (1) the ratio of bad debt expenses to net sales, (2) the ratio of bad debt expenses to
accounts receivables, and (3) the ratio of the allowance for doubtful accounts to accounts
receivables for both companies for 2015.
Ahold:
1. 11/38,203=0.000288
2. 11/837=0.0131
3. 20/837=0.0239 (Ahold has 20 million allowance at end of the year)

Delhaize:
1. 10/24395=0.00041
2. 10/640=0.0156
3. 47/640=0.0734

Calculate the accounts receivables turnover and the average collection period in days for the
accounts receivables.
Formulas:
Net credit sales/average net accounts receivable = accounts receivable turnover
Days in year/accounts receivable turnover = average collection period in days

Ahold: 38203/((837+728)/2) = 48.8

Delhaize: 24395/((623+640)/2) = 38.6

Ahold is able to collect it’s receivables more than Delhaize.

Ahold: 365/48.8 = 7.48

Delhaize: 365/38.6 = 9.46

Ahold’s average collection period is lower than Delhaize’s.

Compare the ratios that you calculated under (5) and (6) for the two companies. What do
you see?
Ahold has more liquid assets than Delhaize. It is thus easier for Ahold to convert their liquid assets
into cash, which results in a higher accounts receivable turnover and a lower average collection
period.

7. How does being more aggressive or conservative affect the financial statements? What could
be reasons that these two companies differ in the reporting of their receivables? Think about
differences in customer types, collection methods, and incentives that managers may have.
Ahold has a more aggressive approach which results in more collection of accounts receivables than
Delhaize. But the conservative approach that Delhaize uses results in more assets.

Ahold’s managers could receive a bonus if their cash flow statement is higher, which leads to the
managers being more aggressive when it comes to collecting receivables.

Delhaize’s managers could receive a bonus if their assets are higher, which leads to the managers
being less aggressive when it comes to collecting receivables.

Task 16:
1:C €7500-€1100 = €6400
2:A
3:C
4:D 0.04*160,000+0.1*32,000+0.21*8,000 = €11,280
€200,000 - €11,280 = €188,720