Receivable 01
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Transcript of Receivable 01
ACCOUNTING FOR RECEIVABLES
Lecture 51
ReceivablesReceivables
Receivables
Current receivables
Noncurrent receivables
Receivable- claims expected to be collected in cash from customers and others for service or goods sold on account.
For reporting purpose
ReceivablesReceivables
Trade receivables
Nontrade receivables
Account receivable
Notes receivable
Other receivables
ACCOUNTS RECEIVABLE . . .
Accounts Receivable are . . .
Short-term, liquid assets that arise from credit sales to customers.
Are usually converted to cash within 10 to 60 days.
4
Notes Receivable—used to grant credit on the basis of a formal instrument of credit, called a promissory note.
Other Receivables—include interest receivable, taxes receivable, and receivables from officers and employees.
ACCOUNTS RECEIVABLE . . .
There are three primary problems associated with Receivables . . .
Recognition
Valuation
Disposition
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Recognition
RECOGNIZING ACCOUNTS RECEIVABLE
DiscountsDiscounts
Trade discounts
Cash discounts
Trade discounts- percentage reduction from the list price
Cash discounts – reductions not in the selling price of good or service, but in the amount to be paid by a credit customer if paid within a specified period of time. It is discount intended to provide incentive for quick payment
RECOGNIZING ACCOUNTS RECEIVABLE
The amount of the discount and time period within which it’s available usually are conveyed by cryptic terms like 2/10, n/30This terms meaning a 2% discount if paid within 10 days, otherwise full payment within 30 days.
RECOGNIZING ACCOUNTS RECEIVABLE
RECOGNIZING ACCOUNTS RECEIVABLE
Æèøýý íü : 5 ñàðûí 15-íä 2/10, n/20 ãýñýí íºõöºëòýéãýýð 200000₮ -èéí ¿íýòýé áàðààã áîðëóóëñàí. Õóäàëäàí àâàã÷ 5.22-íä 120000₮, 5.27-íä ¿ëäýãäýë òºëáºðèéã òóñ òóñ ã¿éöýòãýâ.
Two ways to record cash discounts
Gross method
Net method
GROSS METHOD
5/15 Dt Accounts receivable 200,000 Ct Sales revenue 200,000
5/22 Dt Cash 117,600 Dt Sales discount 2,400 Ct Accounts receivable 120,0005/27 Dt Cash 80,000 Ct Accounts receivable 80,000
NET METHOD
5/15 Dt Accounts receivable 200,000 Ct Sales revenue 200,000
5/22 Dt Cash 117,600 Ct Accounts receivable 117,6005/27 Dt Cash 80,000 Ct Accounts receivable 78,400 Ct Loss of sales discount 1,600
Loss of sales discount
Income statement:Other income
RECOGNIZING ACCOUNTS RECEIVABLE
TRADE DISCOUNTS
15
Жишээ нь: “А” компани зээлээр борлуулалт хийсэн.
Жагсаалтын үнэ 1500,000₮Худалдааны хөнгөлөлт 10- 5- 2
Dt Accounts receivable 1256,850 Ct Sales revenue
1256,850
VALUING ACCOUNTS RECEIVABLE
-They are stated at their net realizable value- Net realizable value is the net amount expected to be received in cash and excludes amounts that the company estimates it will not be able to collect.
ACCOUNTING FOR UNCOLLECTIBLE ACCOUNTS
There are two methods of accounting for Uncollectible Accounts . . .
The direct write-off method; and
The allowance method.
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Direct Write-Off
Meth
od 1
On January 23, TechCom determines it cannot collect $520 from Jack Kent, a credit customer.
On January 23, TechCom determines it cannot collect $520 from Jack Kent, a credit customer.
Direct Write-Off Method
If Jack Kent later pays the $520, the previous entry is simply reversed and the cash collection
is recorded.
If Jack Kent later pays the $520, the previous entry is simply reversed and the cash collection
is recorded.
Direct Write-Off Method
Allowance Method
Meth
od 2
At the end of each period, estimate total bad debts expected to be realized from that
period’s sales.
At the end of each period, estimate total bad debts expected to be realized from that
period’s sales.
This is a contra-asset account.This is a contra-asset account.
Allowance Method
ESTIMATING BAD DEBTS EXPENSE
Percent of Sales Method
Percent of Accounts Receivable Methods
Based on Balance of Accounts Receivable Method
Aging of Accounts Receivable Method
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Estimate the amount of uncollectible accounts.
Based on: Sales
Accts Rec
xxx
xxx
or
Allowance for Doubtful
Accounts
xxx
Bad Debts
Expense
xxx
Then Credit the Allowance account
And Debit the Expense Account
Percent of Sales
Method
Meth
od 1
PERCENT OF SALES METHOD
Bad debts expense is computed as follows:
Estimated Bad Debts Expense= Current period sales * Bad debt %
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PERCENT OF SALES METHOD
MusicLand has credit sales of $400,000 in 2011.
MusicLand estimates 6% of credit sales are uncollectible.
What is Bad Debts Expense for 2011?
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Allowance Method
$400,000
X 0.06%
= $2,400
MusicLand computes estimated Bad Debts Expense
of $2,400
Percent of Accounts
Receivable Method
Meth
od 2
BASED ON BALANCE OF ACCOUNTS RECEIVABLE METHOD
Compute the estimate of the Allowance for Doubtful Accounts.
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Year-End Accounts Receivable x Bad Debt %
Bad Debts Expense is computed as:
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MusicLand has $50,000 in Accounts Receivable and a $200 credit balance in Allowance for Doubtful Accounts on December 31, 2011.
Past experience suggests that 5% of receivables are uncollectible.
What is MusicLand’s Bad Debt Expense for 2011.
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Desired balance in Allowance for Doubtful
Accounts.
% of Accounts Receivable
$50,000
X 0.05%
= $2,500
AGING OF ACCOUNTS RECEIVABLE METHOD
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Year-end Accounts Receivable is broken down into age classifications.
Year-end Accounts Receivable is broken down into age classifications.
Compute a separate allowance for each age grouping.
Compute a separate allowance for each age grouping.
Each age grouping has a different likelihood of being uncollectible.
MUSICLANDSchedule of Accounts Receivable by Age
31-Dec-11
Days Past Due
Accounts Receivable
Balance Percent
Uncollectible
Estimated Uncollectible
Amount
Not Yet Due 37,000$ 2% 740$ 1 - 30 Days Past Due 6,500 5% 325 31 - 60 Days Past Due 3,500 10% 350 61 - 90 Days Past Due 1,900 25% 475 Over 90 Days Past Due 1,100 40% 440
50,000$ 2,330$
AGING OF ACCOUNTS RECEIVABLE
MusicLand’s unadjusted balance in the allowance account is $200. Per the
previous computation, the desired balance is $2,330.
MusicLand’s unadjusted balance in the allowance account is $200. Per the
previous computation, the desired balance is $2,330.
AGING OF ACCOUNTS RECEIVABLE
Disposition
WRITING OFF A BAD DEBT
With the allowance method, when an account is determined to be uncollectible, the debit is to
Allowance for Doubtful Accounts.
With the allowance method, when an account is determined to be uncollectible, the debit is to
Allowance for Doubtful Accounts.
TechCom determines that Jack Kent’s$520 account is uncollectible.
TechCom determines that Jack Kent’s$520 account is uncollectible.
RECOVERY OF A BAD DEBT
Subsequent collections require that the original write-off entry be reversed
before the cash collection is recorded.
Subsequent collections require that the original write-off entry be reversed
before the cash collection is recorded.
% of Sales% of Sales
Emphasis on Matching
Emphasis on Matching
SalesBad
Debts Exp.
Income Statement
Focus
Income Statement
Focus
% of Receivables% of Receivables
Emphasis on Realizable Value
Emphasis on Realizable Value
Accts. Rec. All. for
Doubtful Accts.
Balance Sheet Focus
Balance Sheet Focus
Aging of Receivables
Aging of Receivables
Emphasis on Realizable Value
Emphasis on Realizable Value
Accts. Rec. All. for
Doubtful Accts.
Balance Sheet Focus
Balance Sheet Focus
Exh. 7.13