kimmel accounting 4e powerpoint ch08 receivable

8/9/2019 Kimmel Accounting 4e PowerPoint Ch08 Receivable

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REPORTING AND

ANALYZING

RECEIVABLES

Accounting, Fourth Edition

8


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1. Identify the different types of receivables.2. Explain how accounts receivable are recognized in the accounts.

3. Describe the methods used to account for bad debts.

. !ompute the interest on notes receivable.

". Describe the entries to record the disposition of notes receivable.

#. Explain the statement presentation of receivables.

$. Describe the principles of sound accounts receivable

management.

%. Identify ratios to analyze a company&s receivables.

'. Describe methods to accelerate the receipt of cash from

receivables.

Study Objectives

Study Objectives


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Types o!eceiv"b#es

Types o!eceiv"b#es

Accounts!eceiv"b#e

Accounts!eceiv"b#e

$otes!eceiv"b#e

$otes!eceiv"b#e

St"te%ent&resent"tion o!eceiv"b#es

St"te%ent&resent"tion o!eceiv"b#es

'"n"ging!eceiv"b#es

'"n"ging!eceiv"b#es

!eporting "nd An"#y(ing !eceiv"b#es

!eporting "nd An"#y(ing !eceiv"b#es

Accounts

receiv"b#e

$otes

receiv"b#e

Other

receiv"b#es

!ecogni(ing

"ccountsreceiv"b#e

)"#uing

"ccounts

receiv"b#e

*eter%ining

%"turity d"te

+o%puting

interest

!ecogni(ing

notes

receiv"b#e

)"#uing notes

receiv"b#e

*isposing o

notes

receiv"b#e

"#"nce

sheet "ndnotes

nco%e

st"te%ent

E.tending

credit

Est"b#ishing "

p"y%ent

period

'onitoring

co##ections

Ev"#u"ting

#i/uidity o

receiv"b#es

Acce#er"ting

c"sh receipts


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

(mounts owed by

customers thatresult from the saleof goods andservices.

Accounts!eceiv"b#e

Accounts!eceiv"b#e

Types o !eceiv"b#es

Types o !eceiv"b#es

SO 1 Identify the different types of receivables.

!laims for which

formal instrumentsof credit are issued

as proof of debt.

)*ontrade+

,interest- loans toofficers- advancesto employees- andincome taxes

refundable.

$otes!eceiv"b#e

$otes!eceiv"b#e

Other!eceiv"b#es

Other!eceiv"b#es


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

Types o !eceiv"b#es

Types o !eceiv"b#es

SO 1 Identify the different types of receivables.

##ustr"tion 8-1


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To "ccounting issues

15 !ecogni(ingaccounts receivable.

25 )"#uingaccounts receivable.

Accounts !eceiv"b#eAccounts !eceiv"b#e

SO 2 Explain how accounts receivable are recognized in the accounts.

Service org"ni("tion/ records a receivable when it

provides service on account. 'erch"ndiser/ records accounts receivable at the

point of sale of merchandise on account.

!ecogni(ing Accounts !eceiv"b#e


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##ustr"tion (ssume that 0ordache !o. on 0uly 1- 212- sellsmerchandise on account to olo !ompany for 1- terms

241- n43. repare the 5ournal entry to record this transaction

on the boo6s of 0ordache !o.

(ccounts receivable 1-6u#5 1

7ales revenue1-




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##ustr"tion 8n 0uly "- olo returns merchandise worth 1to 0ordache !o.

7ales returns and allowances 16u#5 0

(ccounts receivable1

##ustr"tion 8n 0uly 11- 0ordache receives payment from

olo !ompany for the balance due.

!ash %%26u#5 11

7ales discounts ,' x .2 1%

(ccounts receivable'




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)"#uing Accounts !eceiv"b#es

!urrent asset.

9aluation ,net realizable value.

9nco##ectib#e Accounts !eceiv"b#e

7ales on account raise the possibility of accounts not

being collected.

7eller records losses that result from extending credit as"d *ebts E.pense.


SO 3 escribe the !ethods used to account for bad debts.


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A##o"nce 'ethod

:osses "re esti%"ted

:etter matching.

;eceivable stated at net

realizable value. ;e


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Accounting or A

=o "re these "ccounts presented on the "#"nce Sheet>=o "re these "ccounts presented on the "#"nce Sheet>

Accounts !eceiv"b#e A##o"nce or*oubtu# Accounts

eg5 0 20 eg5

End5 0 20 End5


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Assets

+urrent Assets

+"sh ? 34

Accounts receiv"b#e, net o ?20 "##o"nce

or doubtu# "ccounts 40

nventory 812

&rep"ids @ 4

Tot"# current "ssets 1,3Fi.ed Assets

Oice e/uip%ent 0,7

Furniture i.tures ,

:ess Accu%u#"ted depreci"tion B3,30C

Tot"# i.ed "ssets 8,044

Tot"# Assets ?1,21

Assets

+urrent Assets

+"sh ? 34



nventory 812

&rep"ids @ 4


Oice e/uip%ent 0,7

Furniture i.tures ,



Tot"# Assets ?1,21


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6ourn"# entry or credit s"#e o ?1>Accounts receiv"b#e 1

S"#es 1

6ourn"# entry or credit s"#e o ?1>

Accounts receiv"b#e 1

S"#es 1

Accounts !eceiv"b#eA##o"nce or*oubtu# Accounts

eg5 0 20 eg5

End5 0 20 End5

Accounting or A


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6ourn"# entry or credit s"#e o ?1>Accounts receiv"b#e 1

S"#es 1

6ourn"# entry or credit s"#e o ?1>


S"#es 1


eg5 0 20 eg5

End5 20 End5

S"#e 1

Accounting or A


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+o##ected o ?333 on "ccount>+"sh 333


+o##ected o ?333 on "ccount>

+"sh 333



eg5 0 20 eg5

End5 20 End5

S"#e 1

Accounting or A


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+o##ected o ?333 on "ccount>+"sh 333


+o##ected o ?333 on "ccount>

+"sh 333



eg5 0 20 eg5

End5 2 20 End5

S"#e 1 333 +o##5

Accounting or A


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Adjust%ent o ?10 or esti%"ted "d-*ebts>"d debt e.pense 10

A##o"nce or *oubtu# Accounts 10

Adjust%ent o ?10 or esti%"ted "d-*ebts>

"d debt e.pense 10



eg5 0 20 eg5

End5 2 20 End5

S"#e 1 333 +o##5

Accounting or A


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Adjust%ent o ?10 or esti%"ted "d-*ebts>"d debt e.pense 10


Adjust%ent o ?10 or esti%"ted "d-*ebts>

"d debt e.pense 10



eg5 0 20 eg5

End5 2 4 End5

S"#e 1 333 +o##5 10 Est5

Accounting or A


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;rite-o o unco##ectib#e "ccounts or ?1>

A##o"nce or *oubtu# "ccounts 1






eg5 0 20 eg5

End5 2 4 End5

S"#e 1 333 +o##5 10 Est5

Accounting or A


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eg5 0 20 eg5

End5 20 3 End5

S"#e 1 333 +o##5 10 Est5

;


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Assets

+urrent Assets

+"sh ? 34



nventory 812

&rep"ids @ 4


Oice e/uip%ent 0,7

Furniture i.tures ,



Tot"# Assets ? 7,77

Assets

+urrent Assets

+"sh ? 34



nventory 812

&rep"ids @ 4


Oice e/uip%ent 0,7

Furniture i.tures ,



Tot"# Assets ? 7,77


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)"#uing Accounts !eceiv"b#e)"#uing Accounts !eceiv"b#e

A##o"nce 'ethod or 9nco##ectib#e Accounts

1. !ompanies esti%"teuncollectible accounts

receivable.

2. Debit "d *ebts E.penseand credit A##o"nceor *oubtu# Accounts,a contra/asset account.

3. !ompanies debit (llowance for Doubtful (ccounts

and credit (ccounts ;eceivable at the time thespecific account is ritten oas uncollectible.



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##ustr"tion Aampson Burniture has credit sales of1-2- in 212- of which 2- remains uncollected at

December 31. Che credit manager estimates that 12- of

these sales will prove uncollectible.


:ad debts expense 12-*ec5 31

(llowance for doubtful accounts 12-



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##ustr"tion 8-3resentation of allowancefor doubtful accounts



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##ustr"tion Che vice/president of finance of Aampson Burniture on

?arch 1- 213- authorizes a write/off of the " balance owed by

;. (. >are. Che entry to record the write/off is@


(llowance for doubtful accounts "'"r5 1

(ccounts receivable "

!ecording ;rite-O o "n 9nco##ectib#e Account

##ustr"tion 8-4



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6u#y 1

##ustr"tion 8n 0uly 1- ;. (. >are pays the " amount that

Aampson Burniture had written off on ?arch 1. Aampson ma6es

these entries@


(ccounts receivable "

(llowance for doubtful accounts "

!ecovery o "n 9nco##ectib#e Account

!ash "(ccounts receivable "



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nder the percent"ge o

receiv"b#esbasis-

management establishes apercentage relationship

between the amount of

receivables and expected

losses from uncollectible

accounts.


Esti%"ting the A##o"nce


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##ustr"tion (ssume the unad5usted trial balance shows (llowance

for Doubtful (ccounts with a credit balance of "2%. repare the

ad5usting entry assuming 2-22% is the estimate of uncollectible

receivables from the aging schedule.


:ad debts expense 1-$*ec5 31

(llowance for doubtful accounts 1-$

##ustr"tion 8-"d debts "ccounts"ter posting

Esti%"ting the A##o"nce


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##ustr"tion 8-8

$ote disc#osure o "ccounts receiv"b#e


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$otes !eceiv"b#e$otes !eceiv"b#e

!ompanies may grant credit in exchange for a promissorynote. ( pro%issory noteis a written promise to pay a

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

romissory notes may be used

1. when individuals and companies lend or borrow money-

2. when amount of transaction and credit period exceed

normal limits- or

3. in settlement of accounts receivable.


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##ustr"tion 8-7


Co the &"yee- the promissory note is a note receiv"b#e.Co the '"Der- the promissory note is a note p"y"b#e.


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*ote expressed in terms of

?onths

Days

+o%puting nterest##ustr"tion 8-1

*eter%ining the '"turity *"te


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;hen counting d"ys- o%itthe date the note is

issued- but inc#udethe due date.

##ustr"tion 8-11

+o%puting nterest


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##ustr"tion :rent !ompany wrote a 1-- two/month- %

promissory note dated ?ay 1- to settle an open account.

repare entry would >ilma !ompany ma6es for the receipt of

the note.

*otes receivable 1-'"y 1

(ccounts receivable 1-

!ecogni(ing $otes !eceiv"b#e


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)"#uing $otes !eceiv"b#e


;eport short/term notes receivable at their c"sh

BnetC re"#i("b#e v"#ue.

Estimation of cash realizable value and bad debtsexpense are done similarly to accounts receivable.

(llowance for Doubtful (ccounts is used.

SO " #o!pute the interest on notes receivable.


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*isposing o $otes !eceiv"b#e

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


1. *otes may be held to their maturity date.

2. ?a6er may default and payee must ma6e an

ad5ustment to the account.

3. Aolder speeds up conversion to cash by selling the

note receivable.


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=onor o $otes !eceiv"b#e



( note is honoredwhen its ma6er pays it in full at its

maturity date.

*ishonor o $otes !eceiv"b#e

( dishonored noteis not paid in full at maturity.Dishonored note receivable is no longer negotiable.

*isposing o $otes !eceiv"b#e


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##ustr"tion >older !o. lends Aigley Inc. 1- on 0une 1-

accepting a five/month- ' interest note. If >older presents the

note to Aigley Inc. on *ovember 1- the maturity date- >older&s

entry to record the collection is@

=onor o $otes !eceiv"b#e



!ash 1-3$"$ov5 1

*otes receivable 1-

Interest revenue 3$"

,1- x ' x "412 F 3$"


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##ustr"tion repare the entry >older&s would ma6e to

record the honoring of the Aigley note on *ovember 1.



!ash 1-3$"$ov5 1

*otes receivable 1-

Interest receivable 3

Interest revenue $"

Accru"# o nterest


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Fin"nci"# St"te%ent &resent"tionFin"nci"# St"te%ent &resent"tion

SO % Explain the state!ent presentation of receivables.

##ustr"tion 8-13:alance sheet presentationof receivables


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'"n"ging !eceiv"b#es'"n"ging !eceiv"b#es

SO & escribe the principles of sound accounts receivable !anage!ent.

?anaging accounts receivable involves ive steps@

1. Determine to whom to extend credit.

2. Establish a payment period.

3. ?onitor collections.

. Evaluate the li


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!ompanies should determine a re


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!ompanies should prepare an accounts receivable

aging schedule at least monthly.

Creasurer should prepare a cash budget.

7ignificant concentrations of credit ris6 must be

discussed in the notes to its financial statements.

'onitoring +o##ections


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##ustr"tion 8-14E.cerpt ro% note onconcentr"tion o credit risD


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Ev"#u"ting :i/uidity o !eceiv"b#es

SO ' Identify ratios to analyze a co!pany(s receivables.


##ustr"tion 8-10


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Accounts !eceiv"b#e Turnover@

(ssess the li


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Acce#er"ting +"sh !eceipts

Three re"sonsfor the sale of receivables@

1. 7ize.

2. !ompanies may sell receivables because they may

be the only reasonable source of cash.

3. :illing and collection are often time/consuming and

costly.

SO ) escribe !ethods to accelerate the receipt of cash fro! receivables.



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$"tion"# +redit +"rd S"#es

Three p"rtiesinvolved when credit cards are used.

1. credit card issuer-

2. retailer- and

3. customer.



Che retailer pays the credit card issuer a fee of 2 to ofthe invoice price for its services.


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S"#e o !eceiv"b#es to " F"ctor

##ustr"tion (ssume that Aendredon Burniture factors #- of

receivables to Bederal Bactors- Inc. Bederal Bactors assesses a

service charge of 2 of the amount of receivables sold.



!ash "%%-7ervice charge expense 12-

(ccounts receivable #-

( "ctoris a finance company or ban6 that buys receivables from

businesses for a fee and then collects the payments directly from

the customers.


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##ustr"tion 8-1'"n"ging receiv"b#es


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ey &oints

F!S re/uires th"t #o"ns "nd receiv"b#es be "ccounted or "t

"%orti(ed cost, "djusted or "##o"nces or doubtu# "ccounts5

F!S so%eti%es reers to these "##o"nces "s provisions5

A#though F!S i%p#ies th"t receiv"b#es ith dierent

ch"r"cteristics shou#d be reported sep"r"te#y, there is no

st"nd"rd th"t %"nd"tes this segreg"tion5

The FAS "nd AS h"ve orDed to i%p#e%ent "ir v"#ue

%e"sure%ent or in"nci"# instru%ents5 The o"rds h"ve

"dopted " piece%e"# "ppro"ch the irst step is disc#osure o

"ir v"#ue inor%"tion in the notes5 The second step is the "ir

v"#ue option, hich per%its, co%p"nies to record so%e

in"nci"# instru%ents "t "ir v"#ues in the in"nci"# st"te%ents5


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ey &oints

F!S re/uires " to-tiered "ppro"ch to test hether the v"#ue o

#o"ns "nd receiv"b#es "re i%p"ired5 First, " co%p"ny shou#d

#ooD "t speciic #o"ns "nd receiv"b#es to deter%ine hether

they "re i%p"ired5 Then, the #o"ns "nd receiv"b#es "s " group

shou#d be ev"#u"ted or i%p"ir%ent5 GAA& does not prescribe "

si%i#"r to-tiered "ppro"ch5

F!S "nd GAA& dier in the criteri" used to derecogni(e

Bgener"##y through " s"#e or "ctoringC " receiv"b#e5 F!S is "co%bin"tion o "n "ppro"ch ocused on risDs "nd re"rds "nd

#oss o contro#5 GAA& uses #oss o contro# "s the pri%"ry

criterion5 n "ddition, F!S per%its p"rti"# derecognition GAA&

does not5


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:ooDing into the Future

oth the AS "nd the FAS h"ve indic"ted th"t they be#ieve th"t

in"nci"# st"te%ents ou#d be %ore tr"nsp"rent "nd

underst"nd"b#e i co%p"nies recorded "nd reported "## in"nci"#instru%ents "t "ir v"#ue5 Th"t s"id, in F!S 7, hich "s issued in

27, the AS cre"ted " sp#it %ode#, here so%e in"nci"#

instru%ents "re recorded "t "ir v"#ue, but other in"nci"# "ssets,

such "s #o"ns "nd receiv"b#es, c"n be "ccounted or "t "%orti(ed

cost i cert"in criteri" "re %et5 t h"s been suggested th"t F!S 7

i## #iDe#y be ch"nged or rep#"ced "s the FAS "nd AS continue

to de#iber"te the best tre"t%ent or in"nci"# instru%ents5


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9nder F!S, #o"ns "nd receiv"b#es "re to be reported on the

b"#"nce sheet "t

"C "%orti(ed cost5

bC "%orti(ed cost "djusted or esti%"ted #oss provisions5

cC historic"# cost5

dC rep#"ce%ent cost5


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n recording the derecognition o " receiv"b#e, or e."%p#e,

"s the resu#t o " "ctoring tr"ns"ction

"C F!S ocuses on #oss o contro#5

bC GAA& ocuses on #oss o contro# "nd risDs "nd

re"rds5

cC F!S "nd GAA& "##o p"rti"# derecognition5

dC F!S "##os p"rti"# derecognition


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kimmel accounting 4e powerpoint ch08 receivable

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