ACCOUNTING CHP 9

The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit to

Accounts Receivable.

Bad Debt Expense is considered

a necessary risk of doing business on a credit basis.

Under the allowance method, writing off an uncollectible account

affects only balance sheet accounts.

Trade accounts receivable are valued and reported on the balance sheet

at net realizable value.

Two methods of accounting for uncollectible accounts are the

direct write-off method and the allowance method

For an interest-bearing note, the amount due at maturity is the

face value of the note plus interest.

If an account is collected after having been previously written off,

there will be both a debit and a credit to accounts receivable.

The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record estimated uncollectible accounts

is relevant when using the percentage of receivables basis.

Claims for which formal instruments of credit are issued as proof of the debt are

notes receivable.

Interest is usually associated with

notes receivable.

A seller may encourage early payment by

offering a discount for early payment.

On May 1, Kingston Company received a $9,000, 10%, four-month note receivable. The cash to be received by Kingston Company when the note becomes due is

$9,300.

Notes or accounts receivables that result from sales transactions are often called

trade receivables.