Chapter F7 Power notes Receivables Learning Objectives 1. Classification of receivables 2. Internal Control of receivables C7 3. Uncollectible Receivables 4 Uncollectibles- Alowance Method 5. Uncollectibles- Direct Write-Off Method 6. Characteristics of notes receivable 7. Accounting for Notes Receivable 8. Balance Sheet Presentation 9. Financial Analysis and Interpretation c7-1
C7 - 1 Learning Objectives Power Notes 1. Classification of Receivables 2. Internal Control of Receivables 3. Uncollectible Receivables 4. Uncollectibles – Allowance Method 5. Uncollectibles – Direct Write-Off Method 6. Characteristics of Notes Receivable 7. Accounting for Notes Receivable 8. Balance Sheet Presentation 9. Financial Analysis and Interpretation Chapter F7 C7 Receivables
Chapter F7 Power notes Receivables Slide #f Power Note Topics 2. Receivables - Classification and control 4. Uncollectibles- Direct Write-Off Method 6. Uncollectibles -Allowance Method 15. Accounting for Notes Receivable 20.Balance Sheet Presentation 21. Accounts Receivable Turnover 22. Number of Days'Sales in Receival k Note: To select a topic, type the slide# and press Enter c7-2
C7 - 2 • Receivables – Classification and Control • Uncollectibles – Direct Write-Off Method • Uncollectibles –Allowance Method • Accounting for Notes Receivable • Balance Sheet Presentation • Accounts Receivable Turnover • Number of Days’ Sales in Receivables Slide # Power Note Topics 2 4 6 15 20 21 22 Note: To select a topic, type the slide # and press Enter. Chapter F7 Power Notes Receivables
Classification of Receivables Accounts Receivable -used for selling merchandise or services on credit, and normally expected to be collected in a relatively short period Notes Receivable- used to grant credit on the basis of a formal instrument of credit, called a promissory note. Other Receivables -interest receivable, taxes receivable, and receivables from officers or employees. c7-3
C7 - 3 Classification of Receivables Accounts Receivable – used for selling merchandise or services on credit, and normally expected to be collected in a relatively short period. Notes Receivable – used to grant credit on the basis of a formal instrument of credit, called a promissory note. Other Receivables – interest receivable, taxes receivable, and receivables from officers or employees
Accounting for Uncollectible Accounts Receivable The Direct Write-Off Method This method is not consistent with the matching principle Accounts that prove to be uncollectible are written off in the year they become worthless. Uncollectible Accounts Expense is debited and Accounts Receivable is credited for each such transaction c7-4
C7 - 4 Accounting for Uncollectible Accounts Receivable • This method is not consistent with the matching principle. • Accounts that prove to be uncollectible are written off in the year they become worthless. • Uncollectible Accounts Expense is debited and Accounts Receivable is credited for each such transaction. The Direct Write-Off Method
Journal Entries- Direct Write-Off Method Date Description Debit Credit May. 10 Uncollectible Accts. Expense 420 Accts. receivable,L. Ross 420 Write off uncollectible account of $420 Nov, 21 Accts Receivable -D. L. Ross 420 Uncollectible Accts. Expense 420 Cash 420 Accts. Receivable-d.L. ross 420 Reinstate and collect prior account written off c7-5
C7 - 5 Journal Entries – Direct Write-Off Method Date Description Debit Credit Uncollectible Accts. Expense 420 Accts. Receivable - D. L. Ross 420 Accts. Receivable - D. L. Ross 420 Uncollectible Accts. Expense 420 Cash 420 Accts. Receivable - D. L. Ross 420 Write off uncollectible account of $420 Reinstate and collect prior account written off. May. 10 Nov. 21