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BAT4M Accounting
Chapter 9: Accounting for Receivables
Mr. Ruston
Chapter Outline
Accounting for Receivables
Chapter 9 Outline
Focused Study Objectives:
1.
3.
5.
6.
10.
IDENTIFY AND DISTINGUISH AMONG THE DIFFERENT TYPES OF RECEIVABLES.
DESCRIBE AND USE THE METHODS AND BASES USED TO VALUE ACCOUNTS RECEIVABLE.
DETERMINE THE INTEREST ON NOTES RECEIVABLE.
SHOW HOW NOTES RECEIVABLE ARE RECOGNIZED IN THE ACCOUNTS.
EVALUATE SHORT-TERM LIQUIDITY.
S.O. #1: Types of Receivables
Receivables refer to ____________ due from individuals and other companies that are
expected to be collected ______________.
Receivables are classified as either:
___________ receivable, are amounts owed by __________ on account. These
receivables are expected to be collected within _____ days or so.
___________ receivable represent claims for which formal instruments of credit
are issued as evidence of the debt. The debtor normally is required to pay
__________ and the time period may extend for 30 to 90 days or longer.
Notes and accounts receivable that result from sales transactions are
often called _________ receivables.
___________ receivables include __________ receivables such as HST
recoverable, interest receivable, loans to company officers, advances to
employees, and recoverable income taxes.
Complete the following: Questions #1,2 (p444) ; Brief Exercise #1 (p445)
S.O. #3: Valuing Accounts Receivable
Valuing receivables involves reporting them at their ________________________. Net
realizable value is the net amount expected to be received in _______.
__________ losses are considered a __________ and ____________ risk of doing
business on a credit basis. Credit losses may be recognized under the
___________________ method or by the _______________ method.
The Direct Write-Off Method
When an account is determined to be uncollectible, the loss is charged to
________________ Expense. As a result, bad debts expense will
show only __________ losses from uncollectible accounts.
Bad debt expense is often recorded in a period other than the period in which the
___________ was recorded. No attempt is made to match bad debts expense
with sales revenues or to show the net realizable value of the accounts
receivable. The direct write-off method may be used for financial reporting
purposes only when bad debts are _____________.
BAT4M Accounting
Chapter 9: Accounting for Receivables
Mr. Ruston
Chapter Outline
The Allowance Method
The allowance method is required for financial reporting purposes when bad
debts are material in amount. Under this method:
Uncollectible accounts receivable are _____________. This estimate is
treated as an expense and is matched against ________ in the same
accounting period in which the sales occurred.
Estimated uncollectibles are ___________to Bad Debts Expense and
___________ to Allowance for Doubtful Accounts through an adjusting
entry at the end of each period.
Actual uncollectibles are debited to Allowance for Doubtful Accounts and
credited to Accounts Receivable at the time the specific account is
written off.
Occasionally, a company collects from a customer after the account has been written off as
uncollectible. The entry made in writing off the account is reversed to reinstate the
customer’s account. The collection is journalized in the usual manner.
Two bases are used to determine the amount of the expected uncollectibles:
They are: ___________________________ and _______________________
Under the percentage of sales basis, management establishes a percentage relationship
between the amount of credit sales and expected losses from uncollectible accounts. The
percentage is based on past experience and anticipated credit policy, and is usually applied
either to total credit sales or net credit sales of the current year.
This basis of estimating uncollectibles emphasizes the __________ of expenses with
revenues (income statement viewpoint). When the adjusting entry is made, the existing
balance in the Allowance for Doubtful Accounts is disregarded.
Under the percentage of receivables basis, management establishes a percentage
relationship between the amount of receivables and expected losses from uncollectible
accounts. This percentage can be applied to _______ receivables or to groupings of
receivables by _______.
This basis produces a better estimate of net realizable value (balance sheet viewpoint).
An aging schedule is often used to determine the _________ balance in the allowance
account at each balance sheet date.
When the adjusting entry is made, the amount of bad debt expense is the difference
between the required balance and the existing balance in the allowance account.
Complete the following: Questions #4, 5, 6, 7 (p444); Brief Exercises #3, 4, 5, 6 (p445);
Exercises #2, 3, 4 (p446-7); Problems #2, 4, 5 (p. 447-9)
BAT4M Accounting
Chapter 9: Accounting for Receivables
Mr. Ruston
Chapter Outline
S.O. #5 Interest on Notes Receivable
A __________ note is a written promise to pay a ___________ amount of money on
demand or at a definite time. Promissory notes may be used:
 When individuals and companies lend or borrow money.
 When the amount of the transaction and the credit period exceed normal limits.
 In settlement of an open account.
Notes receivable gives the holder a stronger _______ claim to assets than accounts
receivable and can be readily ______ to another party.
The formula for calculating interest is _____________ X ________________ X _________
in terms of one year. Time is the number of months within the period (not to exceed a year)
divided by 12.
Complete the following: Question #12 (p444);
Brief Exercise #8 (p445); Exercises #7, 8 (p 447)
S.O. #6 Recognizing Notes Receivable
Recognition occurs when the note is ____________. The note is recorded at its face value
by ___________ Notes Receivable and _____________ Accounts Receivable. No interest
__________ is recorded when the note is received. Interest will be earned and recorded as
time passes.
Complete the following: Question #13 (p444) ; Brief Exercise #9 (p445)
S.O. #10 Evaluate Short-term Liquidity
Collection of trade receivables has a significant impact upon a company’s ______ position.
Four ________ assist in evaluating short-term liquidity:
The ________ ratio (Current _______ ÷ Current ___________) measures a company’s
ability to satisfy its ______-term debts.
The _________ ratio (or _______ ratio) measures a company’s ability to satisfy its shortterm debts immediately.
(Cash + Temporary investments + Accounts receivable) ÷ Current liabilities
The receivables ____________ is a useful measure for assessing a company’s efficiency
in converting _______ sales into cash. The ________ the ratio, the more liquid are the
company’s receivables. Net credit sales ÷ Average accounts receivable
The ________ period is determined by dividing 365 days by the receivables turnover ratio.
Complete the following: Questions #16, 17 (p444) ; Brief Exercise #12 (p445);
Exercise #12 (p448); Problem #10 (p451)