Accounting 211 Chapter 7
How should receivables be reported in the financial statements?
As an asset in the balance sheet.
What are Trade Receivables?
Notes and accounts receivables that result from sales transactions
The company may record credit losses as DEBITS to Bad Debt Expense (or Uncollectible Accounts Expense) for what reason?
Some customers may not pay their amount due because of various reasons,
What is a maturity date?
The maturity date of a note is the day the note (principal and interest) must be repaid.
In a period, notes are expressed of in terms of:
1. Days (the maturity date is the specified number of days after the note's date, NOT including the date of the note) 2. Months (the note matures and is payable in the month of its maturity on the same day of the month as its original date)
Two methods used in accounting for uncollectible accounts are:
1. Direct write-off method 2. Allowance method
Notes Receivable may be disposed of in what three ways?
1. Notes may be held to their maturity date. 2. Maker may default and payee must make an adjustment to the account. 3. Holder speeds up conversion to cash by selling (factor) the note receivable.
When may a promissory note be used?
1. when individuals and companies lend or borrow money, 2. when amount of transaction and credit period exceed normal limits 3. in settlement of accounts receivable.
What is a Dishonored Note?
A dishonored note is not paid in full at maturity. Dishonored note receivable is no longer negotiable.
What is an Honored Note?
A note is honored when its maker pays it in full at its maturity date.
What is a promissory note?
a written promise to pay a specified amount of money, usually with interest, either on demand or at a definite future date.
What is Accounts Receivable?
amounts owned by customers on account as result of the sale of goods and services. Companies typically expect to collect within 30 to 60 days.
What is Notes Receivable?
claims for which formal instruments of credit are issued as proof of the debt. Typically extends for time periods of 60-90 days or longer and requires the debtor to pay interes
What is the maturity value?
is the principal plus the interest.
To the maker...
the promissory note is a note payable.
To the payee...
the promissory note is a note receivable.
True or False: Retailer considers credit card sales the same as cash sales.
• Retailer must pay card issuer a fee of 2 to 4% for processing the transactions. • Retailer records in similar manner as checks deposited from cash sale.
