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Instructor: Dr. Ahmed ZakiPrinciples of Accounting I - ACC 212.02
April 19th, 2014Presenter: Phanara Mao
Accounting Principles : Accounting For Receivables
Objectives
Definition of Receivables
Identify The Different Types of Receivables
Explain How Company Recognize Receivables
Methods and Bases Company Use To Value Account Receivables
Record The Disposition of Account Receivables
Determining Maturity date
Computing The Interest On Note Receivables
Describe The Statement Presentation and Analysis of Receivables
Definition of Receivables
Receivables refer to the amount due from
individuals and other companies that are
expected to be collected in cash (Kieso,
D. W., & Weygandt, J. J. 2012).
Different Types of Receivables
Account Receivables Amounts customers owe on account
Note Receivables Claims for which lenders issue formal
instruments of credit as proof of debt Other Receivables refer to Nontrade
Receivables Interest Receivables Loan to company officers Advances to employees Income Taxes Refundable…
Account Receivables
Three Issues Associate With Account Receivables
1.Recognizing Accounts Receivable. Reporting or recording account receivables
2.Valuing Accounts Receivable. Counting
3.Disposing of accounts receivable. Cancelling account receivable when the cash is
received
Accounts Receivable
Recognizing Accounts Receivable
Ex1. Service organization
- Records a receivable when it provides service on account.
Ex2. Merchandiser
- Records accounts receivable at the point of sale of
merchandise on account.
Accounts Receivable
Practice Recognizing Accounts Receivable
Illustration1: Assume that ABC Company. on July 1, 2012, sells
merchandise on account to ERV Company for $10,000 terms 2/10,
n/30. Prepare the journal entry to record this transaction on the books
of ABC Company.
Solution:
Date Description Dr. ($) Cr. ($)
July 01. Account receivable 10,000
Sales Revenue 10,000
Practice Recognizing Accounts ReceivableIllustration2: On July 5, ERV returns merchandise worth $1000 to ABC Company.
Sales returns and allowances 1000Jul. 5Accounts receivable 1000
Illustration3: On July 11, ABC Companyreceives payment from ERV Company for the balance due.
Cash 8820Jul. 11Sales discounts ($9000 x .02) 180
Accounts receivable9000
Accounts Receivable
Account Receivables
Valuing Account ReceivablesThere are two methods of accounting for uncollectible accounts;The allowances method
No matching.
Receivable not stated at cash realizable value.
Not acceptable for financial reporting.
The direct write-off method Better matching.
Receivable stated at cash realizable value.
Required by GAAP.
Accounts Receivable
Disposing of Accounts Receivable
In the normal course of events, companies collect
accounts receivable in cash and remove the receivables
from the books.
Dr. Cash
Cr. Account Receivable
Note Receivables
Issues Associate With Notes Receivable
1.Determining Maturity Date
2.Computing Interest
3.Recognizing Notes Receivable. Reporting or recording notes receivable
4.Valuing Notes Receivable. Counting
5.Disposing of Notes Receivable. Cancelling notes receivable when the cash is
received
Note expressed in terms of
Months
Days
Ex. Gambit Stores accepts from Leonard Co. a $3,400, 90-day, 12% note dated May 10 in settlement of Leonard’s overdue account. (a) What is the maturity date of the note?
Determining the Maturity Date
Notes Receivables
Solution(a) The maturity date is August 8, computed as follows.Term of note: 90 daysMay (31-10) 21June 30July 31 82Maturity Date: August 8
Note Receivables
Computing The Interest On Note ReceivablesI = P x R x T
I : Interest (Currency. Ex. $, …)
P: Face Value of Note (Currency. Ex. $, …)
R: Annual Interest Rate ( Percentages of 100)
T: Time Taken ( Years)
Ex. Notes Receivables Include the Following;
Date Maker Face Term Interest Rate
May 16. Baylor $ 6,000 60days 10%
May 25. Feltor $ 25,000 60days 09%
May 30. ERV $ 15,000 6 months 08%
Note Receivables
Computing The Interest On Note ReceivablesFormula P x T x R = Interest
Date Maker Face Term Interest Rate
May 16. Baylor $ 6,000 60days 10% = a) $ 100
May 25. Feltor $ 25,000 60days 09% = b) $ 375
May 30. ERV $ 15,000 6 months 08% = c) $ 600
Computation
a). $ 6,000 x 60/360 x 10% = $ 100
b). $ 25,000 x 60/360 x 09% = $ 375
c). $ 15,000 x 6/12 x 08% = $ 600
Statement Presentation and Analysis of Receivables
Presentation
Identify in the balance sheet or in the notes each major
type of receivable.
Report short-term receivables as current assets.
Report both gross amount of receivables and allowance
for doubtful account.
Report bad debts expense and service charge expense
as selling expenses.
Report interest revenue under “Other revenues and
gains.”
Analysis
Statement Presentation and Analysis
Illustration: In 2009 Cisco Systems had net sales of $29,131
million for the year. It had a beginning accounts receivable (net)
balance of $3,821 million and an ending accounts receivable (net)
balance of $3,177 million. Assuming that Cisco’s sales were
all on credit, its accounts receivable turnover ratio is computed as
follows.
Source: Kieso, D. W., & Weygandt, J. J. (2012). Study guide [to accompany] Accounting principles, 10th edition, Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel. Hoboken, NJ: John Wiley &Sons.
Analysis
Statement Presentation and Analysis
Illustration: Variant of the accounts receivable turnover ratio is
average collection period in terms of days.
Source: Kieso, D. W., & Weygandt, J. J. (2012). Study guide [to accompany] Accounting principles, 10th edition, Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel. Hoboken, NJ: John Wiley &Sons.
References
Kieso, D. W., & Weygandt, J. J. (2012). Study guide [to accompany] Accounting principles, 10th edition, Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel. Hoboken, NJ: John Wiley &Sons.
Zaki, A. (Director) (2014, May 19). Accounting For Receivable . Accounting Principles 212.02. Lecture conducted from Zaman University, Phnom Penh.
This is the time for Questions.
Thank You!