Download To accelerate the receipt of cash from receivables, owners frequently

DISPOSING OF
ACCOUNTS RECEIVABLE
To accelerate the receipt of cash from
receivables, owners frequently:
1. sell to a factor, such as a finance company
or a bank, and
2. make credit card sales.
DISPOSING OF
ACCOUNTS RECEIVABLE
• A factor buys receivables from businesses
for a fee and collects the payments
directly from customers.
• Credit cards are frequently used by retailers
who wish to avoid the paperwork of issuing
credit.
• Retailers can receive cash more quickly
from the credit card issuer.
BANK CARD SALES
GENERAL JOURNAL
Date
July 31
Account Titles and Explanation
Cash
Credit Card Expense ($1,000 x 3.5%)
Sales
To record VISA credit card sales.
Anita Ferreri purchases a number of
compact discs for her restaurant
from Karen Kerr Music Co. for
$1,000 using her Royal Bank VISA
card. The service fee that the Royal
charges is 3.5 percent.
Debit
Credit
965
35
1,000
NON-BANK CARD SALES
GENERAL JOURNAL
Date
July 31
Account Titles and Explanation
Accounts Receivable
Credit Card Expense ($500 x 5%)
Sales
To record American Express
credit card sales.
Kerr Music Co. accepts an
AMERICAN EXPRESS card for
a $500 sale. The service fee that
AMERICAN EXPRESS charges
is 5 percent.
Debit
Credit
475
25
500
NOTES RECEIVABLE
•
•
•
A promissory note is a written promise to pay
a specified amount of money on demand or at
a definite time.
The party making the promise is the maker.
The party to whom
payment
is made is
called the
payee.
ILLUSTRATION 9-8
FORMULA FOR
CALCULATING INTEREST
The basic formula for calculating interest on an
interest-bearing note is:
Face Value
of Note
X
Annual
Interest
Rate
X
Time
in Terms of
One Year
=
The interest rate specified on the note is
annual rate of interest.
Interest
an
HONOUR OF NOTES RECEIVABLE
GENERAL JOURNAL
Date
Account Title and Explanation
Sept. 30 Cash
Notes Receivable - Higly
Interest Revenue
To record collection of Higly note.
Debit
Credit
10,150
10,000
150
• A note is honoured when it is paid in full at its maturity date.
• Wolder Co. lends Higly Inc. $10,000 on June 1, accepting a
4.5% interest-bearing note, due in 4 months, on September 30.
• Wolder collects the maturity value of the note from Higley on
September 30.
DISHONOUR OF NOTES RECEIVABLE
GENERAL JOURNAL
Date
Account Title and Explanation
Sept. 30 Accounts Receivable - Higly
Notes Receivable - Higly
Interest Revenue
To record the dishonour of Higly note.
Debit
Credit
10,150
10,000
150
• A dishonoured note is a note that is not paid in full at
maturity.
• A dishonoured note receivable is no longer negotiable.
• Since the payee still has a claim against the maker
of
the note, the balance in Notes Receivable is
usually transferred to Accounts Receivable.