Professional Documents
Culture Documents
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OBJECTIVES
ACCOUNT RECEIVABLE
C1 Describe accounts receivable and how they occur and are recorded .
C2 Describe a note receivable, the computation of its maturity date, and the recording of its existence.
P3 Record the honoring and dishonoring of a note and adjustments for interest
DISPOSAL AND ANALYSIS OF RECEIVABLES
A1 Compute accounts receivable turnover and use it to help assess financial condition.
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1. Accounts Receivable
C1
Oakley 17.0%
Pfizer 8.2%
Sales on Credit
Credit sales are recorded by increasing (debiting) Accounts Receivable. A
company must also maintain a separate account for each customer that tracks
how much that customer purchases, has already paid, and still owes.
1. Accounts Receivable
C1 1.1. Recognizing Accounts Receivable
DR CR
Jul 1 Accounts Receivable - CompStore 950
Sales 950
To record credit sales to CompStore
Cash 720
Accounts Receivable – RDA Electronics 720
To record credit sales to RDA Electronics
1. Accounts Receivable
C1 1.1. Recognizing Accounts Receivable
Accounts receivable ledger
Accounts Receivable Ledger (accounts receivable subsidiary ledger).
RDA Electronics
Date PR Debit Credit Balance Schedule of
Jun 30 1,000 1,000 Accounts Receivable
Jul 1 720 280
RDA Electronics $ 280
CompStore 2,950
Total $ 3,230
CompStore
Date PR Debit Credit Balance
Jun 30 2,000 2,000
Jul 1 950 2,950
General Ledger
Accounts Receivable
Date PR Debit Credit Balance
Jul 1 3,230 3,230
1. Accounts Receivable
C1 1.1. Recognizing Accounts Receivable
Credit Card Sales: Many sellers allow customers to use third-party credit cards
and debit cards instead of granting credit directly
Advantages of allowing customers to use credit cards:
Sales increase by
Customers’ credit is
providing purchase
evaluated by the
options to the
credit card issuer.
customer.
The risks of
extending credit are Cash collections are
transferred to the quicker.
credit card issuer.
1. Accounts Receivable
C1 1.1. Recognizing Accounts Receivable
With bank credit cards, the seller deposits the credit Credit Card Sales
card sales receipt in the bank just like it deposits a
customer’s check.
DR CR
Jul 15 Cash 96
Credit Card Expense 4
Sales 100
To record credit card sales and fees
1. Accounts Receivable
C1
1.1. Recognizing Accounts Receivable
If instead TechCom must remit electronically the credit card sales receipts to
the credit card company and wait for the $96 cash payment, we will make the first
entry on July 15th, and the second entry on July 28th, when the cash is received.
DR CR
Jul. 15 Accounts Receivable - Credit Card Co. 96
Credit Card Expense 4
Sales 100
To record credit card sales and fees.
Jul. 28 Cash 96
Accounts Receivable - Credit Card Co. 96
To record receipt from credit card company
1. Accounts Receivable
C1 1.1. Recognizing Accounts Receivable
Allowance Method
1. Accounts Receivable
P1 1.2. Valuing Accounts Receivable—Direct Write-Off Method
DR CR
Jan 23 Bad Debts Expense 520
Accounts Receivable - J. Kent 520
To write-off uncollectible account
1. Accounts Receivable
P1 1.2. Valuing Accounts Receivable—Direct Write-Off Method
DR CR
Mar 11 Accounts Receivable - J. Kent 520
Bad Debts Expense 520
To reinstate account previously written-off
The direct write-off method usually does not best match sales and expenses because bad
debts expense is not recorded until uncollectible after the period of credit sale
→ requires a company to estimate future uncollectibles.
1. Accounts Receivable
P2 1.2. Valuing Accounts Receivable—Allowance Method
^
|
contra asset
At the end of its first year of operations, TechCom estimates that $1,500
of its accounts receivable will prove uncollectible. The total accounts
receivable balance at December 31, 2009, is $20,000, and the company
had total credit sales of $300,000 during the year.
TechCom
Partial Balance Sheet
December 31, 2009
Cash
Accounts receivable $ 20,000
Less: Allowance for doubtful accounts 1,500 $ 18,500
1. Accounts Receivable
P2 1.2. Valuing Accounts Receivable—Allowance Method
$ 400,000
× 0.6% Musicland’s accountant
computes estimated Bad Debts
= $ 2,400
Expense of $2,400.
DR CR
Dec. 31 Bad Debts Expense 2,400
Allowance for Doubtful Accounts 2,400
To record estimated bad debts
1. Accounts Receivable
P2 1.3. Estimating Bad Debts Expense
DR CR
Dec. 31 Bad Debts Expense 2,300
Allowance for Doubtful Accounts 2,300
To record estimated bad debts
1. Accounts Receivable
P2 1.3. Estimating Bad Debts Expense
DR CR
Dec. 31 Bad Debts Expense 2,070
Allowance for Doubtful Accounts 2,070
To record estimated bad debts
1. Accounts Receivable
P2 1.3. Estimating Bad Debts Expense
Summary of Methods
Aging of
% of Sales % of Receivables
Receivables
Income
Balance
Statement
Sheet Focus
Focus
2. Notes Receivable
C2 A promissory note is a written promise to pay a specified amount of money, usually with
interest, either on demand or at a definite future date
Sellers sometimes ask for a note to replace an account receivable when a customer
requests additional time to pay a past-due account.
Sellers generally prefer to receive notes when the credit period is long and when the
receivable is for a large amount.
2. Notes Receivable
C2 2.1. Computing Maturity and Interest
Maturity date of a note is the day the note (principal and interest) must be repaid.
nợ gốc mặc định % trên năm
Days in July 31
Minus the date of the note 10
Days remaining in July 21
Days in August 31
Days in September 30
Days in October to maturity 8
Period of the note in days 90
DR CR
ở balance sheet
Jul 10 Notes Receivable 1,000
Sales 1,000
Sold goods in exchange for note
2. Notes Receivable
P4 2.3. Valuing and Settling Notes
DR CR
Oct 8 Cash 1,030
Interest Revenue 30
Notes Receivable 1,000
Collected note and interest due
2. Notes Receivable
P4 2.3. Valuing and Settling Notes
DR CR
Dec. 31 Interest Receivable 15
Interest Revenue 15
To accrue interest on note
2. Notes Receivable
P4 2.3. Valuing and Settling Notes
DR CR
Feb 14 Cash 3,060
Interest Receivable 15
Interest Revenue 45
Notes Receivable 3,000
To record full payment of note
3. Disposing of Receivables
C3
• Companies sometimes want to convert receivables to cash before they are due.
• They can sell or factor receivables.
• They may pledge receivables as security for a loan.
▪ The buyer, called a factor, charges the seller a factoring fee and then the buyer takes
ownership of the receivables and receives cash when they come due.
▪ A company can raise cash by borrowing money and pledging its receivables as security
for the loan.
For Ind.
Assignment, Accounts Receivable Turnover
A1 read pg. 392
Net sales
Average accounts receivable
$ in millions 2006 2005 2004 2003
Dell
Net sales $ 57,420 $ 55,788 $ 49,121 $ 41,327
Average accounts receivable 4,352 3,826 4,025 3,111
Accounts receivable turnover 13.2 14.6 12.2 13.3
Apple
Net sales $ 19,315 $ 13,931 $ 8,279 $ 6,207
Average accounts receivable 1,074 835 770 666
Accounts receivable turnover 18.0 16.7 10.8 9.3
Homework
HOMEWORK:
E9-10, 9-11, 9-12, 9-13, 9-14, pg. 402
Problem 9-1A, pg. 402, Problem 9-2A, 9-3A, pg. 403 (Wild 22nd ed)
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