ACCT 200 1st Edition Lecture 11 Outline of Last Lecture I Terms II Separation of Duties III Reconciliations IV Homework 5 8 V Homework 5 10 VI Homework 5 12 VII Homework 5 13 VIII Homework 5 1 IX Homework 5 3 Outline of Current Lecture I Review II Uncollectibles III Net Realizable Value IV EOP adjustment V Notes Receivable VI Things to remember VII Homework 6 2 Current Lecture I Review These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute a Receivables assets i Current asset is less than one year ii Long term asset is greater than one year b Accounts receivable no interest c Notes receivable do have interest d Interest receivable comes about due to interest earned on a note receivable II Uncollectibles a Uncollectibility risk can be reduced by i Refusing to sell on account only accept cash 1 This is a turn off to customers ii Transferring collection risk to credit card company 1 Transaction fees can be between 5 and 10 percent iii Transferring risk to factor a company that buys another company s accounts receivable for cash and then they try to collect on the original account receivable collection agencies III Net Realizable Value a If a company determines that their accounts receivable is not providing future value i e it is uncollectible then they must decrease the asset balance on the balance sheet b Total estimated uncollectible amount is the allowance for doubtful accounts c Net Realizable Value NRV the ultimate amount of cash the company expects to collect d NRV accounts receivable allowance for doubtful accounts e A company comes up with the percentage taken off of accounts receivable based on previous experience with customers IV EOP adjustment a Allowance for doubtful accounts is a contra asset b Allowance for doubtful accounts also comes out of equity V Notes Receivable a note is an unconditional promise more formal than accounts receivable legally binding a Principal amount face value b Maturity date due date collect face value with interest i this is the ONLY date CASH is received c interest rate d term from issuance to maturity date e Notes receivable are generated when a company i Converts an open account receivable to a formal note ii OR lends money to another business VI Things to remember a MOST MISSED ON TEST we use double entry accounting meaning every transaction affects two different accounts b In this class we use a 360 day year this just makes things easier calculation wise c Interest revenue principle x rate x time d On the next exam you should draw out timelines to help you solve these kinds of problems VII Homework 6 2 a Notes receivable increases 40 000 Accounts receivable decreases 40 000 b 40000 x 09 x 25 360 250 increase interest received 250 increase interest revenue 250 c 40000 x 09 x 20 360 200 increase cash 40450 decrease note receivable 40000 decrease interest received 250 increase revenue 200
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