Accounting Chap: 9 Receivables

Other receivables expected to be collected within one year are classified as current assets. If collection is expected beyond one year, these receivables are classified as noncurrent assets and reported under the caption Investments. Examples of other receivables include:

1. Interest receivable 2. Taxes receivable 3. Receivables from officers or employees.

The allowance method requires an estimate of uncollectible accounts at the end of the period. Two methods are used to estimate the amount debited to Bad Debt Expense:

1. Percent of sales method-uncollectible accounts are estimated as a percentage of credit sales 2. Analysis of receivables method-the longer an account is outstanding, the less likely that it will be collected.

What is the due date of a 90-day note dated March 16? See Examples: 9-19, 9-20, 9-22, 9-24.

Days in March 31 Minus issuance date of note 16 Days remaining in March 15 Add days in April 30 Add days in May 31 Add days in June  (due date of June 14) 14 Term of note 90 days (31-16=15). (15+30+31+14=90)

The estimate based on the age of receivables is compared to the balance in the allowance account to determine the amount of the adjusting entry.

See exercises 9-6, 9-11, 9-12, p. 429-431.

Analysis of receivables method is applied as follows:

Step 1: The due date of each account receivable is determined. Step 2: The number of days each account is past due is determined. Step 3: Each account is placed in an aged class according to its days past due. Step 4: The totals for each aged class are determined. Step 5: The total for each aged class is multiplied by an estimated percentage of uncollectible accounts for that class. Step 6: The estimated total of uncollectible accounts is determined as the sum of the uncollectible accounts for each aged class.

Basing the estimate of uncollectible accounts on how long specific amounts have been outstanding is called what?

aging the receivables.

The _____________________ records bad debt expense by estimating uncollectable accounts at the of the period. (Exercise 9-5 p. 429).

allowance method.

The ___________________________ of accounting for uncollectable receivables records bad debt expense only when an account is determined to be worthless.

direct write-off method.

The__________________ is the amount that must be paid at the due date of the note, which is the sum of the face amount and the interest.

maturity value.

A note receivable, or promissory note, is a written document containing a promise to pay. Characteristics of a promissory note are as follows:

1. The maker is the party making the promise to pay. 2. The payee is the party to whom the note is payable. 3. The face amount is the amount the note is written for on its face. 4. The issuance date is the date a note is issued. 5. The due date or maturity date is the date the note is to be paid. 6. The term of a note is the amount of time between the issuance and due dates. 7. The interest rate is the rate of interest that must be paid on the face amount for the term of the note.

Regardless of how careful a company is in granting credit, some credit sales will be uncollectible. The operating expense recorded from uncollectible receivables is called ________________, uncollectible accounts expense, or doubtful accounts expense.

1. bad debt expense.

Companies often sell their receivables to other companies. This called ________________ the receivables, and the buyer of the receivables is called a ____________.

1. factoring 2. factors

Some indications that an account may be uncollectible include the following:

1.The receivable is past due. 2. The customer does not respond to the company's attempts to collect. 3. The customer files for bankruptcy. 4. The customer closes its business. 5. The company cannot locate the customer.