CHAPTER 7Cashand Receivables……..…………………………………………………………...
Cash
readily available
free from contractual restrictions
restricted cash: current or long-term
Would a bank accept it for deposit?
Petty cash accountCas
hSep
arat
e Disc
losur
e
Other
Ass
ets
Liabil
ities
Bank overdraft
Advances to subsidiaries
Certificates of deposit
RECEIVABLES
Current Receivables
trade receivables
accounts receivable
notes receivable
nontrade receivables
tax refunds, advances, etc.
Noncurrent Receivables
classified as long-term assets
Reported atnet
realizable value
Estimate:- uncollectible- sales returns
Trade Discounts
a reduction in catalog price
usually stated as a percentage
record the sale at the discounted amount
no one pays full price!
Sales Discounts
a discount for prompt payment
Gross Method vs. Net Method
(cf. Illustration 7-4)
2/10, n/30
Uncollectible Accounts Receivable
not an acceptable method
violation of the matching principle
failure to report net realizable value
Direct Method
To write-off an account as uncollectible:
Bad Debts Expense 540Accounts Receivable 540
Allowance Method
To write-off accounts as uncollectible:
Sales
090,000
A/R
7,70090,000 87,000
Allow for DA
500
Bad Debt Exp
0
To record bad debts expense for the year:
Allowance Method – Percentage of Sales
Sales
090,000
A/R
7,70090,000 87,000
960
Bad Debt Exp
0
To record bad debts expense for the year:
Allow for DA
500960
Bad Debts = % of credit sales
$900 = 1% x $90,000
Allowance Method – Percentage of Receivables
Sales
090,000
A/R
7,70090,000 87,000
960
Bad Debt Exp
0
To record bad debts expense for the year:
Allow for DA
500960
Allowance for DA = % of A/R
9,740
$487 = 5% x $9,740
NOTES RECEIVABLE
Notes Issued at Face Value
Bigelow Corp sells merchandise to customer for a
3-year, $5,000 note bearing interest at 10%
annually. Market rate for a similar note is 10%.
Periods Rate PV Annuity FV AD?
Noninterest-bearing Notes
Bigelow Corp sells merchandise to customer for a
3-year, $5,000 noninterest-bearing note. Market
rate for a similar note is 10%.
Periods Rate PV Annuity FV AD?
To record receipt of the note:
To record the interest earned:
DateCash
ReceivedInt Rev.(10%)
DiscountAmortize
d
CarryingAmount
7/1/03 3,757
7/1/04
7/1/05
Interest-bearing Notes
Bigelow Corp sells merchandise to customer for a
3-year, $5,000, 6% note. Interest on the note will
be paid semiannually. The market rate for a similar
note is 10%.
Periods Rate PV Annuity FV AD?
To record receipt of the note:
To record the first interest payment received:
DateCash
ReceivedInt Rev.
(5% semi)
DiscountAmortize
d
CarryingAmount
7/1/03 4,492
1/1/04
7/1/04
Notes Received for Property
Bigelow Corp sells an office building for a 5-year,
$225,000 note bearing interest at 2% annually.
Information on the building:
Original cost $230,000
Accumulated deprec 69,000
Appraisal value 194,000
Periods Rate PV Annuity FV AD?
DISPOSITION OF ACCOUNTS RECEIVABLE
Secured Borrowing
A/R are used as collateral when borrowing money
Notes or loans payable are recorded as usual
A/R remain on the books of the company
no special entry when they become collateral
collection of A/R recorded as usual
collections are remitted to the lender
Sale of Receivables
Factoring: sale of receivables to a bank
Securitization: sales of a share in a pool of assets
that include receivables
Sale without Recourse
Cash 460,000Due from Factor 25,000Loss on Sale of Receiv 15,000
A/R 500,000
Sale with Recourse
Cash 460,000Due from Factor 25,000Loss on Sale of Receiv 21,000
A/R 500,000Recourse Liability 6,000
Proceeds retained by the factor for possible
discounts, returns, and allowances.
The estimated value of the recourse
obligation.
PRESENTATION AND ANALYSIS - RECEIVABLES
Presentation
Separate current from noncurrent
Report net realizable value
Disclose receivables pledged as collateral
Analysis
A/RTurnover
Net Sales
Average Net Trade Receivables=
PETTY CASH SYSTEM
Receipt
Petty Cash 500Cash 500
Fund EstablishedExpenses Paid
No entry
Office Exp 130Auto Exp 215Misc Exp 130
Cash 475
ReceiptReceiptReceiptReceiptReceipt
Fund Reimbursed
BANK RECONCILIATIONS
Balance per bank $13,417.20Add: Deposits in Transit
Oct. 31, 2006 2,013.00Less: Checks Outstanding
#5164 $ 220.00#5170 35.50#5171 756.67 1,012.17
Adjusted balance per bank $14,418.03
Balance per books $14,425.53Less: Bank service charge 7.50
Adjusted balance per books $14,418.03
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