ACCT 200 Lecture 10 Outline of Last Lecture II Inventory Costing pt 2 III Analysis of Inventory Outline of Current Lecture IV Types of Receivables V Accounts Receivable VI Notes Receivable Current Lecture Chapter 8 Reporting and Analyzing Receivables Types of Receivables Amounts due from individuals and companies that are expected to be collected in cash A R amounts customers owe on account that result from the sale of goods and services o Short term N R written promise formal instrument for amount to be received Also called trade receivables o Short term or long term Other receivables nontrade receivables such as interest loans to officers advances to employees and income taxes refundable o Short term or long term o Not from operations Accounts Receivable Two accounting issues 1 Recognizing accounts receivable 2 Valuing accounts receivable Recognizing accounts receivable Service organization records a receivable when it performs service on account Merchandiser records accounts receivable at the point of sale of merchandise on account Valuing Accounts Receivable 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 AFDA allowance for doubtful accounts BDE bad debt expense Uncollectible accounts receivable Sales on account raise to the possibility of accounts not being collected Seller records losses that result from extending credit as bad debt expense Methods of accounting for uncollectible accounts Allowance Method o Losses are estimated Matches revenue and expense o A R valued at NCRV o Is GAAP Direct write of o DON T USE o NOT ALLOWED NO GAAP 2 Methods for estimating the allowance 1 Aging of A R how old is the outstanding A R how many days since the due date 2 Percent of A R calc 1 000 000 A R x percent Aging the accounts receivable customer balances are classified by the length of time they have been unpaid Notes Receivable A promissory note is a written promise to pay a specified amount of money on demand or at a definite time May be used When individuals and companies lend or borrow money When amount of transaction and credit period exceed normal limits terms In settlement of accounts receivable To the payee the promissory note is a N R To the maker the promissory note is a N P Determining the maturity date Note expressed in terms of o Months o Days Computing interest When counting days omit the date the note is issued but include the due date Valuing notes receivable Report short term notes receivable at cash net realizable value N R allowance account is AFDA Disposing of notes receivable Held to maturity is settled Default Sell the note speed up cash collection Honor of notes receivable A note is honored when its maker pays it in full at its maturity date Dishonor of notes receivable A dishonored note is not paid in full at maturity Dishonored note receivable is no longer negotiable