Receivables cwer

8/13/2019 Receivables cwer

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Receivables

A. Classification1. Short-term Receivables--short-term receivables are receivables that

will mature in less than one year or one operating cycle, whichever islonger

2. Long-term Receivables--long-term receivables are receivables that wilmature in greater than one year or one operating cycle, whichever islonger

. Accounts Receivable--an oral promise from others to pay for goo!s an!services sol! on open account1. "aluation--in practice, interest income relate! to the accounts

receivable is ignore! because the amount of the !iscount is not usuallmaterial in relation to the net income for the perio!

2. Cash #iscounts--cash !iscounts are re!uctions in the invoice priceoffere! as an in!ucement for prompt payment $state! in the following

symbolism% a&b,n&! where a is the ' !iscount, b is the length of timein which payment must be ma!e to receive the !iscount an! n&! is thelength of time in which full payment must be ma!e( an! may be recor!e!using either the gross metho! or the net metho!a. )ross *etho!--the gross metho! assumes that cash !iscounts will n

be ta+en an! highlights the !iscounts ta+en1( Accounting

a( #ate of Sale--accounts receivable an! sales are recor!e! the gross invoice price

b( #ate of ayment--any !iscounts ta+en are recor!e! as are!uction in sales

2( llustrationsa( A corporation sol! inventory to a customer on open accoun

at an invoice price of /,000 terms 2&10, n&0 thecustomer pai! the invoice within the !iscount perio!

#ate of Sale%Accounts Receivable /,000

Sales /,00

#ate of ayment%Cash 3,400$/,000 5 2' 6 /,000(

Sales #iscounts 100Accounts Receivable /,00

b( A corporation sol! inventory to a customer on open accounat an invoice price of /,000 terms 2&10, n&0 thecustomer !i! not pay the invoice within the !iscount perio

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#ate of Sale%Accounts Receivable /,000

Sales /,00

#ate of ayment%Cash /,000

Accounts Receivable /,00

b. 7et *etho!--the net metho! assumes that cash !iscounts will beta+en an! highlights the !iscounts not ta+en1( Accounting

a( #ate of Sale--accounts receivable an! sales are recor!e! the gross invoice price less any available !iscount

b( #ate of ayment--any !iscounts not ta+en are recor!e! as other revenue

2( llustrationsa( A corporation sol! inventory to a customer on open accoun

at an invoice price of /,000 terms 2&10, n&0 thecustomer pai! the invoice within the !iscount perio!

#ate of Sale%Accounts Receivable 3,400$/,000 5 2' 6 /,000(

Sales 3,40

#ate of ayment%Cash 3,400

Accounts Receivable 3,40

b( A corporation sol! inventory to a customer on open accounat an invoice price of /,000 terms 2&10, n&0 thecustomer !i! not pay the invoice within the !iscount perio

#ate of Sale%Accounts Receivable 3,400$/,000 5 2' 6 /,000(

Sales 3,40

#ate of ayment%Cash /,000


Sales #iscounts 8orfeite! 10

. 9ncollectibility--the loss from uncollectible accounts receivable maybe recor!e! using either the !irect write-off metho! or the allowancemetho!a. #irect :rite-off *etho!--the !irect write-off metho! recogni;es b

!ebt e6pense in the perio! in which the account receivables proveto be uncollectible

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1( Accountinga( Actual Loss--when a specific account receivable has been

!etermine! to be uncollectible, the loss is recor!e! by!ebiting ba! !ebt e6pense an! cre!iting accounts receivabl

b( Recovery--when a previously written off account receivableis collecte!, the entry to write off the account isreverse! an! the collection is recor!e! as a normalcollection

2( llustrationa( #uring year 1 a corporation ma!e cre!it sales of 200,000

an! ma!e collections of 1/0,000 !uring year 2 thecorporation ma!e cre!it sales of 00,000, ma!e collectionof 3ear 1%Accounts Receivable 200,000

Sales 200,00

Cash 1/0,000Accounts Receivable 1/0,00

>ear 2%Accounts Receivable 00,000

Sales 00,00

Cash 2?1,=00$3ear 1%a! #ebt 6pense 3,000



a! #ebt 6pense 3,00

Cash 3,000Accounts Receivable 3,00


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b. Allowance *etho!--the allowance metho! recogni;es ba! !ebt e6pensein the perio! in which the cre!it sale is ma!e1( Accounting

a( stimate! Loss--an estimate of the loss from uncollectibleaccounts receivable is recor!e! in the perio! in which thecre!it sales are ma!e by !ebiting ba! !ebt e6pense an!re!ucing accounts receivable through an allowance accountusing either the percentage of sales metho! or percentageof receivables metho!( ercentage-of-sales *etho!--the amount of the estimate

loss is eBual to the cre!it sales for the perio!multiplie! by the estimate! percentage of the cre!itsales that will prove to be uncollectible

( ercentage-of-receivables *etho!--the amount of theestimate! loss is eBual to the uncollecte! accountsreceivable at the en! of the perio! multiplie! by theestimate! percentage of the accounts receivable that

will prove to be uncollectible increase!&!ecrease! bythe !ebit&cre!it balance in the allowance account

b( Actual Loss--when a specific account receivable has been!etermine! to be uncollectible, the actual loss is recor!eby !ebiting the allowance account an! cre!iting accountsreceivable

c( Recovery--when a previously written off account receivableis collecte! the entry to write off the account isreverse! an! the collection is recor!e! as a normalcollection

2( llustrations

a( #uring year 1 a corporation ma!e cre!it sales of 200,000an! ma!e collections of 1/0,000 !uring year 2 thecorporation ma!e cre!it sales of 00,000, ma!e collectionof 3


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Sales 00,00

Cash 2?1,=00$3ear 1%

Accounts Receivable 200,000Sales 200,00

Cash 1/0,000Accounts Receivable 1/0,00

a! #ebt 6pense ,000Allowance for 9ncollectibleAccounts ,00$


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Cash 2?1,=00$3


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!ate of receipt of the note to the !ate of maturity othe note

2( llustration--a corporation sol! inventory on *arch 1 an!receive! a 10,000, =',


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September 1%Cash 10,000

7otes Receivable 10,00

#iscount on 7otes Receivable 300nterest ncome 30

2. Long-term 7otesa. Accounting

1( Cost *etho!--a note receivable is value! at its cost at the!ate the note receivable is acBuire! with the fair mar+et valuof the note receivable !isclose! in the notes to the financialstatementsa( #ate of Receipt--the note receivable is recor!e! at the

present value of the future cash payments using the mar+erate of interest( 7otes Receivable--the notes receivable account is

!ebite! for the face value of the note( #iscount&remium on 7otes Receivable--the

!iscount&premium on notes receivable account iscre!ite!&!ebite! for the !ifference between the facevalue an! the present value of the note

b( #ate of ayment--each payment is allocate! between interean! principal( 8ace Rate of nterest--interest income is recogni;e!

for the face rate of interest times the beginningcarrying value of the note receivable accountA( 7otes Receivable--the notes receivable account is

cre!ite! for the e6cess of the amount of thepayment over the amount of interest income

( *ar+et Rate of nterest--interest income is recogni;e!for the !ifference between the mar+et rate of interestimes the beginning carrying value of the note an! theface rate of interestA( #iscount&remium on 7otes Receivable--the

!iscount&premium on notes receivable account is!ebite!&cre!ite! for the !ifference between theface rate of interest an! the mar+et rate ofinterest

2( llustrationsa( A 1/0,000, -year noninterest bearing note was receive!

anuary 1 of year 1 when the mar+et rate of interest was=' the note is to be repai! in eBual installments of/0,000 on #ecember 1 of year 1, year 2, an! year

/0,000 6 2./??10 D 12=,=//

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Amorti;ation Sche!ules%8ace Rate%

eginning nterest Cash n!ingalance ncome ayment alance1/0,000 @ --- - /0,000 D 100,00100,000 @ --- - /0,000 D /0,00/0,000 @ --- - /0,000 D ---

*ar+et Rate%eginning nterest Cash n!ingalance ncome ayment alance12=,=// @ 10,0= - /0,000 D =4,1ear 1%7otes Receivable 1/0,000

#iscount on 7otes Receivable 0,42Cash 114,0?

#iscount on 7otes Receivable 4,/2ear 2%#iscount on 7otes Receivable 10,2==

nterest ncome 10,2=$10,2== 5 0(

>ear %Cash 1/0,000

7otes Receivable 1/0,00

#iscount on 7otes Receivable 11,111nterest ncome 11,11$11,111 5 0(

f( A 114,0?/, -year, =' note was receive! on anuary 1 ofyear 1 when the mar+et rate of interest was =' the note ito be repai! in a single installment of 1/0,000 on#ecember 1 of year

1/0,000 6 .?4= D 114,0?/

Amorti;ation Sche!ule $8ace Rate D *ar+et Rate(%eginning nterest Cash n!ingalance ncome ayment alance114,0?/ @ 4,/2< - 0 D 12=,ear 2%nterest Receivable 10,2==

nterest ncome 10,2=

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>ear %nterest Receivable 11,111

nterest ncome 11,11

Cash 1/0,000nterest Receivable 0,427otes Receivable 114,0?

g( A 12=,=//, -year, =' note was receive! on anuary 1 ofyear 1 when the mar+et rate of interest was 11' the noteis to be repai! in eBual installments of /0,000 on#ecember 1 of year 1, year 2, an! year

/0,000 6 2./??10 D 12=,=///0,000 6 2.33?1 D 122,1=

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