Chapter 8: Reporting and Analyzing ReceivablesChapter 8: Reporting and Analyzing ReceivablesTypes of Receivables:- Accounts Receivable:o Two Accounting Issues:1. Recognizing accounts receivable. 2. Valuing accounts receivable. o 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.o Valuing Accounts Receivable: Current asset. Valuation (net realizable value).o Uncollectible Accounts Receivable: Sales on account raise the possibility of accounts not being collected. Seller records losses that result from extending credit as bad debts expense. - Allowance Method for Uncollectible Accounts:1. Companies estimate uncollectible accounts receivable. 2. Debit bad debts expense and credit allowance for doubtful accounts (a contra-asset account).3. Companies debit allowance for doubtful accounts and credit accounts receivable at the time the specific account is written off as uncollectible. - Notes Receivable:o Companies may grant credit in exchange for a promissory note. A promissory note is a written promise to pay a specified amount of money on demand or at a definite time. o Promissory notes may be used as: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 receivables. o To the payee, the promissory note is a note receivable. o To the maker, the promissory note is a note payable. o Valuing Notes Receivable: Report short-term notes receivable at their cash (net) realizable value. Estimation of cash realizable value and recording bad debt expenseand related allowance are similar to accounts receivable.- Determining the Maturity Date:o Notes expressed in terms of Months and Days. o Computing Interest: Face Value of Note * Annual Interest Rate * Time in Terms of One Year =
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