西方财务会计-Chapter课件.ppt

1、Chapter 6Accounts Receivable And Notes ReceivableIntroduction In addition to cash,cash equivalents,and short-term investments,the current(liquid)assets of an entity include receivables that result from credit sales to customers.These receivables include(1)accounts receivables and(2)notes receivable.

2、Accounts Receivable Accounts receivable are relatively liquid asset,usually converting into cash within a period of 30 to 60 days.Therefore,accounts receivable from customers are classified as current assts and are listed in the balance sheet immediately after cash and short-term investments.Account

3、s ReceivableThree Important Concepts about A/R 1.Cash Discounts(Sales Discounts)2.Sales Returns and Allowances 3.Bad Debts(Uncollectible Accounts)Uncollectible Accounts When a company grants credit to its customers,there usually are a few who do not pay what they promised.The accounts of such custom

4、ers are called uncollectible accounts or bad debts.The bad debts amounts that cannot be collected is an expense of selling on credit.When the bad debt expense is recorded,a contra asset account Allowance for uncollectible accounts is established to report accounts receivable in the balance sheet at

5、the amounts expected to be collected.Uncollectible Accounts Receivable When credit is extended,some amount of uncollectible receivables is generally inevitable.If uncollectible receivables are probable and can be estimated,an estimate should be made of the amount uncollectible and recorded in the pe

6、riod in which the revenue was produced(allowance method).We can also write off uncollectible accounts directly to an expense account if we dont want to maintain an allowance account for accounts receivable(direct writing off method)Allowance MethodWhen we estimate the amount of our uncollectible rec

7、eivables,we make the following adjusting entry:GENERAL JOURNALPage 69DateDescriptionPost.Ref.DebitCredit Bad Debt Expense#Allowance for Doubtful Accounts#The Allowance for Doubtful Accounts is a contra account to Accounts Receivables.Allowance Method As accounts become uncollectible,the following en

8、try is made:GENERAL JOURNALPage 69DateDescriptionPost.Ref.DebitCredit Allowance for Doubtful Accounts#Accounts Receivable#The balance in the Allowance account reduces Accounts Receivable on the Balance Sheet.Allowance MethodIf an account previously written off proves to be collectible in a subsequen

9、t period,the following entries are made:GENERAL JOURNALPage 69DateDescriptionPost.Ref.DebitCredit Accounts Receivable#Allowance for Doubtful Accounts#Cash#Accounts Receivable#Estimating Bad DebtsEstimating Bad Debts:Credit Sales Method This method emphasizes the matching principle and is considered

10、an income statement approach.An average percentage relationship between actual bad debt losses and net credit sales is determined based on historical information.And the percentage is applied to current period net credit sales to estimate bad debt expense for the year.Credit Sales MethodExample Renc

11、o,Inc.Estimate of Bad DebtsSales for 19X92,000,000$Cash sales during the period(250,000)Net credit sales1,750,000 Bad debt percentage1.25%Bad debt expense21,875$Credit Sales MethodExampleG E N E R A L JO U R N A LP a g e 6 9D ateD es criptionP os t.R ef.D ebitC reditD ec 31B ad D ebt E xpens e21,875

12、A llow ance for D oubtful A ccounts21,875Accounts Receivable Method ExampleCrecore,Inc.determined that the balance in the Allowance for Doubtful Accounts should be 2.5%of Accounts Receivable.At year-end Accounts Receivable had a balance of$191,000,and the Allowance account had a credit balance of$1,

13、250.Prepare the adjusting entry to record Bad Debt Expense.Accounts Receivable Method ExampleCrecore,Inc.Estimate of Bad Debt ExpenseAccounts receivable at year-end191,000$Bad debt composite rate2.50%Desired Allowance balance4,775 Current Allowance balance(1,250)Bad Debt Expense3,525$Accounts Receiv

14、able MethodExampleGENERAL JOURNALPage 69DateDescriptionPost.Ref.DebitCreditDec 31Bad Debt Expense3,525Allowance for Doubtful Accounts3,525 The Way of Disposing Bad Debts Writing off uncollectible accounts(textbook)During the following year,the company will find that some of its accounts are not coll

15、ectible.When all efforts to collect an account fail,the account is written off.If the company decides to write off Bakers$200 past-due account,Feb.6 Allowance for Uncollectible Accounts 200 Accounts Receivable 200 Notice:writing off a bad debt does not affect owners equity,nor does it change the net

16、 amount of accounts receivable.See page138 If the estimate of doubtful accounts was a good one,most of the allowance account will be used up by the end of the next accounting period.The amount remaining in this account at the end of the year,whether a debit or a credit,is again adjusted to bring the

17、 account to the proper balance when a new estimate is made.Collecting written-off accounts Occasionally an account that was written of is later collected.For example,Trammel Corporation collects a$80 account that was written of last year.Mar.11 Accounts Receivable 80 Allowance for Uncollectible Acco

18、unts 80 To restore Palmers account previously written off.11 Cash 80 Accounts Receivable 80 Collected Palmers account.Direct writing off methodDirect written-off method-to write off the actual bad debts _when an account is considered to be uncollectible,the following entry may be made:Bad Debts Expe

19、nse#Accounts Receivable#To write off somebodys account._No adjusting entry to made at the end of the accounting period.Notes Receivable A promissory note is a legal document signed by the maker,or borrower,promising to pay to the lender,or payee,the principal amount of the note plus interest at a st

20、ated rate.A note receivable is an promissory note.(see next slide)Notes Receivable An unconditional written promise.Made&signed by the maker(borrower).To pay the bearer or stated payee.A definite amount of money.Notes Receivable Frequently businesses accept notes from their customers in exchange for

21、 merchandise or for accounts receivable that the customer does not pay when due.The business may accept the note to accommodate the customer or to make the sale,which might be lost if cash payment were required.A note can be sold to a bank or other institution when the holder needs cash(discounting)

22、.In this case,the payee endorses the note by signing it on the back(endorsement).Accounting For Notes Receivable A note received from a customers is an asset because it becomes a claim against the buyers for the amount due.On Dec.1 Beylor Company received a$6,000 60-day 9 percent note from Miss Mend

23、oza for services performed.Dec.1 Notes Receivable 6,000 Service Revenue 6,000 received 60-day 9percent note from Mendoza.Accounting For Notes Receivable At December 31,the end of the companys fiscal year,the interest earned to date on notes receivable should be accrued by an adjusting entry as follo

24、ws:Dec.31 Interest receivable 45 Interest revenue 45 to accrue interest for the month of December on Miss Mendoza note($6000*9%*1/12=$45)Accounting For Notes Receivable Sixty days later when the note is collectedJan.30 Cash 6,090 Notes Receivable 6000 Interest Receivable 45 Interest Revenue 45 Simpl

25、e Interest Note (example)On November 1,19X5,Winn,Inc.loans$25,000 to Westward,Co.The note bears interest at 12%and is due on November 1,19X6.Prepare the journal entry on November 1,19X5,December 31,19X5(year-end)and November 1,19X6.Simple Interest Note (example)Simple Interest Note (example)GENERAL

26、JOURNALPage 56DateDescriptionPost.Ref.DebitCredit19X6Nov1 Cash28,000Note Receivable25,000Interest Receivable500Interest Revenue2,500$25,000 12%=$3,000-$500=$2,500 Dishonored Notes A note that is not renewed or collected at maturity is dishonored.Interest continues to accrue on the maturity value of

27、the note.If the note cannot be collected,the amount of the loss depends upon whether it has already been considered in the bad debt estimation.Accounting For Notes Receivable:Dishonored Notes Sometimes when a note matures,the customer is unable or unwilling to pay the debt.At that time the note shou

28、ld be transferred from Notes Receivable to a special account for dishonored notes.Dishonored Notes If Mendoza does not pay her note when due,Jan.30 Accounts Receivable 6,090 Notes Receivable 6,000 Interest Revenue 45 Interest Receivable 45 to record note in default The interest revenue has been earn

29、ed and is therefore recorded.Accounting For Notes Receivable:Dishonored Notes If,however,the company is not successful in collecting the note,or if it collects only a part of the note,a loss is incurred.Dishonored Notes For example,Beylor Company may turn the defaulted note over to a collection agen

30、cy.If the agency collects the note and charges a fee of 40 percent of the amount collected,July 29 Cash 3,654 Loss on Defaulted Note 2,436 Accounts Receivable 6,090 Received proceeds of past-due note from collection agency.note:The loss may also be recorded as a collection expense.Discounting Notes

31、Receivable If a business needs cash and does not wish to hold its notes to maturity,it can discount notes with a bank in exchange for cash.The bank buys the notes and holds them to maturity,earning interest on its investment.When a bank discounts a note receivable,it first calculates the maturity va

32、lue of the note.Then,using its own discount rate,it calculates the amount of interest that it will charge for the note.The interest charge by the bank is calculated on the maturity value of the note and is deducted from the maturity value to arrive at the amount of proceeds,which the bank pays to th

33、e seller of the note.Discounting Notes Receivable Note is sold to a financial institution.Discount fee is the discount rate times the maturity value of the note for the time remaining to maturity.Maker of the note pays the financial institution at maturity.Discounting Notes Receivable:(example)If Be

34、ylor discounts the Mendoza note immediately upon receiving it,and the bank charges a 10 percent discount rate,Maturity value$6,090.00Less:Discount 101.50Proceeds to seller$5,988.50 Discounting Notes Receivable(example)Dec.1 Cash 5,988.50 Interest Expense 11.50 Notes Receivable 6,000discounted Mendoz

35、a note at 10 percent.Note:the Interest Expense represents the cost of obtaining cash today,rather than waiting until the matures.The banks discount rate is higher than the interest rate that will be paid by the note;therefore,Baylor must make up the difference to the bank.Discounting Notes Receivabl

36、e:(example)If Beylor had waited 30 days before discounting the note,then Maturity value$6,090.00 Less:Discount 50.75 Proceeds to seller$6,039.25 Discounting Notes Receivable:(example)Dec.31 Cash 6,039.25 Notes Receivable 6,000 Interest Revenue 39.25 discounted Mendoza note at 10 percent Discounting

37、Notes:(exercise for students)On May 30,Apex discounts a customers$25,000 note at the bank.The note was dated May 1 and matures in 90 days.The note bears interest at 12%and the bank charges a discount of 15%on the maturity value of the note.Prepare the journal entry to record the discounting of the n

38、ote.Discounting Notes:(answer)Principal amount of note25,000.00$Interest to maturity,i=12%,n=90 days750.00 Maturity value of the note25,750.00 Discount fee,i=15%,n=60 days(643.75)Proceeds from sale25,106.25$GENERAL JOURNALPage 69DateDescriptionPost.Ref.DebitCreditMay 30 Cash25,106.25Notes Receivable

39、25,000.00Interest Revenue106.256.3-3 Selling Notes Receivable Creates Contingent Liabilities When a note is discounted with the bank,the seller of the note is liable to the bank for the proceeds on the notes if the maker does not pay.A contingent liability arising from discounting of notes must be d

40、isclosed in the financial statements.This is usually accomplished by means of a footnote indicating the amount of the discounted notes and explaining that there is a contingent liability for this amount.In our example,if the maker of the note does not pay the bank at maturity,Beylor will have to pay

41、 the bank$6,090.Beylor may disclose its contingent liability in its Dec.31s balance sheet through some footnote.(see textbook)Selling Notes Receivable Creates Contingent Liabilities If the maker of the discounted note defaults on the note,the bank returns the note to the endorser and demands payment

42、.For our example,assume that the Mendoza note was discounted on Dec.31,as previously illustrated.On Jan.30 the note is not paid as promised.The bank returns the note to Beylor Company and collects the maturity value.Jan.30 Accounts Receivable 6,090 Cash 6,090 Beylor will now attempt to collect the n

43、ote from Mendoza.If it succeeds in collecting only part of the note,the remainder is written off as a loss.Selling Notes Receivable Creates Contingent Liabilities If financial statements are prepared before the note is collected,the accrued interest revenue must be recorded,and the portion of the discount that has been earned must be written off.By December 31,interest for six months has been earned on the note,part as accrued interest and part as expired discount.