Receivables - bhel reyes


Presentation Description

No description available.


Presentation Transcript

Slide 1: 

RECEIVABLES Reported by: Reyes, Maribel PL

Slide 2: 

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

Slide 3: 

CLASSIFICATION OF RECEIVABLES ACCOUNTS RECEIVABLE The most common transaction creating a receivables is selling merchandise or services on credit. The receivables is recorded as a debit to the accounts receivable account.

Slide 4: 

NOTES RECEIVABLE Amounts that the customers owe for which a formal, written instrument of credit has been issued. Notes are often used for credit periods of more than 60days.

Slide 5: 

Notes may be used to settle a customer’s receivable. Notes and accounts receivable that result from sales transactions are sometimes called trade receivables.

Slide 6: 

UNCOLLECTIBLE RECEIVABLES Some customers will not pay their accounts. That is, some accounts receivables will be uncollectible. Many retail businesses may shift the risk of uncollectible receivables to other companies. Ex. Some retailers do not accept sales on account, but will only accept cash or credit cards. Such policies shift the risk to credit card companies.

Slide 7: 

2 Methods of accounting for receivables that appear to be uncollectible: Direct write-off method 2. The allowance method.

Slide 8: 

Direct write-off method Records bad debt expense only when an account is judged to be worthless. Allowance method Records bad debt expense by estimating uncollectible accounts at the end of the accounting period.

Slide 9: 

Direct Write-Off Method for Uncollectible Accounts To illustrate, assume that a $4,200 account receivable from D.L.Ross has been determined to uncollectible. The entry to write off the account is as follows:

Slide 10: 

What happen if an account receivables that has been written off is later collected? In such cases, the account is re-instated by an entry that reverses the write-off entry. The cash received in payment is then recorded as a receipt on account.

Slide 11: 

To illustrate, assume that the D.L.Ross account of $4,200 written off on May10 In the preceding, entry is later collected on Nov.21. The re-instatement and receipt of cash is recorded as follows:

Slide 12: 

Ex1. Journalize the ff. transaction using direct write-off method for uncollectible receivables: July 9. Received $1,200 from Jay Burke&wrote off the remainder owed of $3,900 as collectible. Oct 11. Reinstated the account of Jay Burke & received $3,900 cash full payment.

Slide 13: 

Allowance Method for Uncollectible Accounts The allowance method is required by generally accounting principles for companies with large accounts receivable. As a result, most well-known companies such Gen.Electric Company, PepsiCo, &others companies use the allowance method. Ex. Assume that ExTone Company began operations in Aug. & chose to use the calendar yr. as its fiscal yr. As of Dec 31,2007, ExTone Company has an accounts receivable balance of $1,000,000 that includes some accounts that are past due. However, ExTone doesn’t know w/c customer accounts will be uncollectible. Based upon industry data, ExTone estimates that $40,000 of its accounts receivables will be collectible.

Slide 14: 

Using this estimate, the ff. adjusting entry is made on Dec 31: Since the $40,000 reduction in account receivable is an estimate, specific customer accounts cannot be reduced or credited. Instead, a contra asset account entitled Allowance for Doubtful Accounts is credited.

Slide 15: 

Write-Offs to the Allowance Account When a customer’s account is identified as uncollectible, it is written off against the allowance account. This requires the company to remove the specific account receivable & an equal amount from the allowance account. For ex. On Jan 2, 2008, John Parker’s account of $6,000 w/ ExTone Company is written off as follows.

Slide 16: 

At the end of a period, the Allowance for Doubtful Accounts will normally have a balance. This is because the Allowance for Doubtful Accounts is based upon an estimate. As a result, the total write-offs to the allowance account during the period will rarely equal the balance of the account at the beginning of the period. The allowance account will have a credit balance at the end of the period if the write-offs during the period are less than the beginning balance. It will have a debit balance if the write-offs exceed the beginning balance.

Slide 17: 

To illustrate, assume that during 2008 ExTone Company writes off $36,750 of uncollectible accounts, including the $6,000 account of John Parker recorded on Jan21. The Allowance for Doubtful Accounts will have a credit of $3,250 ($40,000 - $36,250)

Slide 18: 

If Extone Company had written off $44,100 in accounts receivables during 2008, the Allowance for doubtful Accounts would have a debit of $4,100

Slide 19: 

Ex. Assume that Nancy Smith’s account of $5,000 which was written-off on Apr.2 is later collected on June10. ExTone Company records the reinstatement & the collection as follows:

Slide 20: 

Ex2. Journalize the ff. transactions using the allowance method for uncollectible receivables. July 9. Received $1,200 from Bruke & wrote off the remainder owed of $3,900 as uncollectible. Oct 11. Reinstated the account of Jar Bruke and received $3,900 cash in full payment.

Slide 21: 

ESTIMATING UNCOLLECTIBLES The estimate of uncollectible at the end of a fiscal period is based on past experience & forecasts of the future. 2 Methods commonly used: A percent of sales An analysis of the receivables.

Slide 22: 

Estimate Based on Percent of Sales Ex. Assume that on Dec 31, 2008, the allowance for Doubtful Accounts for ExTone Company has a credit balance of $3,250. In addition, ExTone estimates that 1 ½% of 2008 credit sales will be uncollectible. If credit sales for the year are $3,000,000, the adjusting entry for uncollectible accounts on Dec. 31 as follows:

Slide 23: 

After the preceding adjusting entry is posted to the ledger, Bad Debt Expense will have a balance of $45,000, and the Allowance for Doubtful Accounts will have a balance of $48,250

Slide 24: 

Ex3. At the end of the current yr, Accounts Receivable has a bal. of $800,000; Allowance for Doubtful Accounts has a credit bal. of $7,500; and a net sales for the year total $3,500,000. Bad debt expense is estimated at ½ of 1% net sales. Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivables, Allowance for Doubtful Accounts, & Bad Debt Expense, c) The net realizable value of accounts receivable.

Slide 25: 

Estimate Based on Analysis of Receivables Aging the receivables is the process to be use. Ex. Assume that Rodriguez Company is preparing an aging schedule for its accounts receivable of $86,300 as of Aug 31, 2008. The $160 account receivable for Saxon Woods Company was due on May 29. As of Aug 31, Saxon’s account is 94 days past due

Slide 26: 

A portion of the aging schedule for Rodriguez Company. The schedule shows the total amount of receivables in each aging class.

Slide 27: 

Rodriguez Company uses a sliding scale of percentages, based on industry or company experience, to estimate the amount of uncollectibles in each aging class. Shown in the table, the percent estimated as uncollectible increases the longer the account is past due. Hile for For accounts not past due,the percent 2%,while for accounts over 365days past due the percent is 80%. The total of these amounts is the desired end-of-period balance for the Allowance for Doubtful Accounts is $3,390.

Slide 28: 

At the end of the current year. Accounts Receivable has s bal. of $800,000; Allowance for Doubtful Accounts has s credit bal. of $7,500; & net sales for the year total $3,500,000. Using the aging method, the bal. 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, & Bad Debt Expense; & c) the net realizable value of accounts receivable.

Slide 29: 

NOTES RECEIVABLE Advantages By signing a note, a debtor recognizes the debt and agrees to pay it according to the terms listed. Characteristics: It can be payable either to an individual or business, or to the bearer or holder of the note. It is signed by the person or firm that makes the promise.

Slide 30: 

ACCOUNTING FOR NOTES RECEIVABLES A customer may use a note to replaced an account receivable. To illustrate, assume that a company accepts a 30days, 12% note dated Nov 21, 2008, in settlement of the account of W.A Bunn Co., which is past due & has a bal. of $6,000. The company records the receipt of the note. When the note matures, the company records the receipt of $6,060 ($6,000 principal plus $60 interest)

Slide 31: 

Ex5. Same Day Surgery Center received a 120-day, 6% note for $40,000, dated March 14 from a patient on account. Determine the due date of the note. Determine the maturity value of the note. Journalize the entry to record the receipt of the payment of the note at maturity.

Slide 32: 

Reporting Receivables on the Balance Sheet All receivables that are expected to be realized in cash w/in a yr. are presented in the Current Assets section of the bal. sheet. It is normal to list the assets in the order of their liquidity. This is the order in w/c they are expected to be converted to cash during normal operations. An example of presentation of receivables is shown in the partial bal. sheet

Slide 33: 


authorStream Live Help