Receivables
This presentation is the property of its rightful owner.
Sponsored Links
1 / 43

Receivables PowerPoint PPT Presentation


  • 202 Views
  • Uploaded on
  • Presentation posted in: General

0. 8. Receivables. 0. 8-1. Classification of Receivables. The term receivables includes all money claims against other entities, including people, business firms, and other organizations. 0. 8-1. Accounts Receivable.

Download Presentation

Receivables

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Receivables

0

8

Receivables


Receivables

0

8-1

Classification of Receivables

The term receivables includes all money claims against other entities, including people, business firms, and other organizations.


Receivables

0

8-1

Accounts Receivable

Accounts receivable are normally expected to be collected within a relatively short period, such as 30 or 60 days.


Receivables

0

8-1

Notes Receivable

Notes receivable are amounts that customers owe for which a formal, written instrument of credit has been issued.


Receivables

0

8-1

Other Receivables

Other receivables expected to be collected within one year are classified as current assets. If collection is expected beyond one year, these receivables are classified as noncurrent assets and reported under the caption Investments.


Receivables

0

8-2

Uncollectible Receivables

There are two methods of accounting for receivables that appear to be uncollectible: the direct write offmethod and the allowance method.


Receivables

0

8-2

The direct write offmethod records bad debt expense only when an account is judged to be worthless. The allowance method records bad debt expense by estimating uncollectible accounts at the end of the accounting period.


Receivables

0

8-3

Direct Write-Off Method

On May 10, a $4,200 accounts receivable from D. L. Ross has been determined to be uncollectible.

May 10 Bad Debt Expense 4 200 00

Accounts Receivable—D. L. Ross 4 200 00

15


Receivables

0

8-3

The amount written off is later collected on November 21.

Nov. 21 Accounts Receivable—D. L. Ross 4 200 00

Bad Debt Expense 4 200 00

21Cash 4 200 00

Accounts Receivable—D. L. Ross 4 200 00

16


Receivables

0

8-3

The direct write-off method is used by businesses that sell most of their goods or services for cash and accept only MasterCard or Visa, which are recorded as cash sales.


Receivables

Example Exercise 8-1

0

8-3

Journalize the following transactions using the direct write-off method of accounting for uncollectible receivables.

July9Received $1,200 from Jay Burke and wroteoff the remainder owed of $3,900 as uncollectible.

Oct. 11Reinstated the account of Jay Burke and received $3,900 cash in full payment.

18


Receivables

Follow My Example 8-1

0

8-3

July 9Cash1,200

Bad Debt Expense3,900

Accounts Receivable—Jay Burke5,100

Oct.11Accounts Receivable—Jay Burke3,900

Bad Debt Expense3,900

11Cash3,900

Accounts Receivable—Jay Burke3,900

19

For Practice: PE 8-1A, PE 8-1B


Receivables

0

8-4

The allowance method is required by generally accepted accounting principles for companies with large accounts receivable. In contrast to the direct write-off method, the allowance method estimates the accounts receivable that will not be collected and records bad debt expense for this estimate at the end of each accounting period.


Receivables

0

8-4

Allowance Method

On December 31, ExTone Company estimates that a total of $40,000 of the $1,000,000 balance in her company’s Accounts Receivable will eventually be uncollectible.

Dec. 31 Bad Debt Expense 40 000 00

Allowance for Doubtful Accounts 40 000 00

Uncollectible accounts estimate.

22


Receivables

0

8-4

Net Realizable Value

The net amount that is expected to be collected, $960,000 ($1,000,000 – $40,000), is called the net realizable value (NRV). The adjusting entry reduces receivables to the NRV and matches uncollectible expenses with revenues.


Receivables

0

8-4

On January 21, John Parker’s account totaling $6,000 is written off because it is uncollectible.

Jan. 21Allowance for Doubtful Accounts 6 000 00

Accounts Receivable—John Parker 6 000 00

To write off the uncollectible account.

24


Receivables

0

8-4

During 2008, ExTone Company writes off $36,750 of uncollectible accounts, including the $6,000 account of John Parker. After posting all entries to write-off uncollectible amounts, the Allowance for Doubtful Accounts will have a credit balance of $3,250 ($40,000 – $36,750).


Receivables

0

8-4

ALLOWANCE FOR DOUBTFUL ACCOUNTS

{

Jan. 1, 2008 Bal.40,000

Total accounts written off $36,750

Jan. 216,000

Feb. 23,900

“ “

“ “

Dec. 31 Unadjusted bal3,250

27


Receivables

0

8-4

If ExTone Company had written off $44,100 in accounts receivable during 2008, the Allowance for Doubtful Accounts would have a debit balance of $4,100.


Receivables

0

8-4

ALLOWANCE FOR DOUBTFUL ACCOUNTS

{

Jan. 1, 2008 Bal.40,000

Total accounts written off $44,100

Jan. 216,000

Feb. 23,900

“ “

“ “

Dec. 31 Unadjusted bal4,100

29


Receivables

0

8-4

Collecting a Written-Off Account

Nancy Smith’s account of $5,000 which was written off on April 2 is later collected on June 10. Two entries are needed: one to reinstate Nancy Smith’s account and a second to record receipt of the cash.


Receivables

0

8-4

Entry 1: Reinstate the account.

June10Accounts Receivable—Nancy Smith 5 000 00

Allowance for Doubtful Accounts 5 000 00

To reinstate the account written off on Jan. 21.

31


Receivables

0

8-4

Entry 2: Record collection of cash.

June10Cash 5 000 00

Accounts Receivable—Nancy Smith 5 000 00

Collection of written-off account.

32


Receivables

Example Exercise 8-2

0

8-4

Journalize the following transactions using the allowance method of accounting for uncollectible receivables.

July9Received $1,200 from Jay Burke and wroteoff the remainder owed of $3,900 as uncollectible.

Oct. 11Reinstated the account of Jay Burke and received $3,900 cash in full payment.

33


Receivables

Follow My Example 8-2

0

8-4

July 9Cash1,200

Allowance for Doubtful Accounts3,900

Accounts Receivable—Jay Burke5,100

Oct.11Accounts Receivable—Jay Burke3,900

Allowance for Doubtful Accounts3,900

11Cash3,900

Accounts Receivable—Jay Burke3,900

34

For Practice: PE 8-2A, PE 8-2B


Receivables

0

8-4

Estimating Uncollectibles

The allowance method uses two ways to estimate the amount debited to Bad Debt Expense.

  • Estimate based on a percentage of sales.

  • Estimate based on analysis of the receivables.


Receivables

If credit sales for the period are $3,000,000 and it is estimated that 1½ % will be uncollectible, the Bad DebtExpenseis debited for $45,000 ($3,000,000 x .015). This approach disregards the balance in the allowance account before the adjustment.

0

8-4

Estimate Based on a Percentage of Sales


Receivables

0

8-4

After this adjusting entry is posted, Allowance for Doubtful Accounts will have a balance of $48,250.

Dec. 31 Bad Debt Expense 45 000 00

Allowance for Doubtful Accounts 45 000 00

Uncollectible accounts ($3,000,000 x 0.015 = $45,000).

37


Receivables

0

8-4

BAD DEBT EXPENSE

Dec. 31 Adj entry45,000

Dec. 31 Adjusted bal.45,000

ALLOWANCE FOR DOUBTFUL ACCOUNTS

{

Jan. 1, 2008 Bal.40,000

Total accounts written off $36,750

Jan. 216,000

Feb. 23,900

“ “

Dec. 31 Unadjusted bal3,250

Dec. 31 Adj. entry45,000

Dec. 31 Adjusted bal.48,250

38


Receivables

Example Exercise 8-3

0

8-4

At the end of the current year, Accounts Receivable has a balance of $800,000; Allowance for Doubtful Accounts has a credit balance of $7,500; and net sales for the year total $3,500,000. Bad debt expense is estimated at ½ of 1% of net sales.

Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense; and (c) the net realizable value of accounts receivable.

39


Receivables

Follow My Example 8-3

Adjusted Balance

  • Accounts Receivable$800,000

  • Allowance for Doubtful Accounts

  • ($7,500 + $17,500)25,000

  • Bad Debt Expense17,500

0

8-4

  • $17,500 ($3,500,000 x .005)

  • $775,000 ($800,000 – $25,000)

40

For Practice: PE 8-3A, PE 8-3B


Receivables

0

8-4

Estimating Uncollectibles Based on Analysis of Receivables

The longer an account receivable is outstanding, the less likely that it will be collected. Basing the estimate of uncollectible accounts on how long specific amounts have been outstanding is called aging the receivables.


Receivables

0

8-4

Aging of Accounts Receivables

42


Receivables

0

8-4

Estimate of Uncollectible Accounts

43


Receivables

0

8-4

Estimate Based on Analysis of Receivables

If it is estimated that $3,390 of the receivables will be uncollectible and the Allowance forUncollectibleAccountscurrently has a balance of $510, theBad DebtExpensemust be debited for $2,880 ($3,390 – $510).

45


Receivables

0

8-4

Estimate Based on Analysis of Receivables

Aug. 31 Bad Debt Expense 2 880 00

Allowance for Doubtful Accounts 2 880 00

Uncollectible accounts ($3,390 – $510).

46


Receivables

0

8-4

BAD DEBT EXPENSE

Aug. 31 Adj. entry2,880

Aug. 31 Adj. bal.2,880

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Aug. 31 Unadj. bal.510

Aug. 31 Adj. entry2,880

Aug. 31 Adj. bal.3,390

47


Receivables

0

8-4

If the unadjusted balance of Allowance forUncollectibleAccounts had been a debit balance of $300, the amount of the adjustment would have been $3,690 ($3,390 + $300).


Receivables

0

8-4

BAD DEBT EXPENSE

Aug. 31 Adj. entry3,690

Aug. 31 Adj. bal.3,690

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Aug. 31 Adj. entry3,690

Aug. 31 Adj. bal.3,390

Aug. 31 Unadj. bal.300

49


Receivables

Example Exercise 8-4

0

8-4

At the end of the current year, Accounts Receivable has a balance of $800,000; Allowance for Doubtful Accounts has a credit balance of $7,500; and net sales for the year total $3,500,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as $30,000.

Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense, and (c) the net realizable value of accounts receivable.

50


Receivables

Follow My Example 8-4

Adjusted Balance

  • Accounts Receivable$800,000

  • Allowance for Doubtful Accounts30,000

  • Bad Debt Expense22,500

0

8-4

  • $22,500 ($30,000 – $7,500)

  • $770,000 ($800,000 – $30,000)

51

For Practice: PE 8-4A, PE 8-4B


Receivables

Amount of bad debt expense recorded

Allowance account

Primary users

54

0

8-5

Comparing the Direct Write-Off and Allowance Methods

Direct Write-Off Method

When the actual accounts receivable are determined to be uncollectible

No allowance account is used

Small companies and companies with relatively few receivables


Receivables

Amount of bad debt expense recorded

Allowance account

Primary users

55

0

8-5

Comparing the Direct Write-Off and Allowance Methods

Allowance Method

Using estimate based on either (1) a percentage of sales or (2) analysis of receivables.

The allowance account is used

Large companies and those with a large amount of receivables


  • Login