1. ACCOUNTING FOR RECEIVABLES Accounting Principles, Eighth Edition
CHAPTER 9
ACCOUNTING FOR RECEIVABLES
Accounting Principles, Eighth Edition

2. Disposing of Accounts Receivable
Sale of Receivables
A factor buys receivables from businesses and then collects the payments directly from the customers.
Typically the factor charges a commission to the company that is selling the receivables.
The fee ranges from 1-3% of the amount of receivables purchased.
LO 4 Describe the entries to record the disposition of accounts receivable.

3. Disposing of Accounts Receivable
E9-7 (a) On March 3, Corn Co. sells $680,000 of its receivables to Marsh Factors Inc. Marsh Factors assesses a finance charge of 3% of the amount of receivables sold. Prepare the entry on Corns’ books to record the sale of the receivables.
($680,000 x 3% = $20,400)
Cash 659,600
Service charge expense 20,400
Accounts receivable 680,000
LO 4 Describe the entries to record the disposition of accounts receivable.

4. Disposing of Accounts Receivable
Credit Card Sales
Retailer considers credit card sales the same as cash sales.
Retailer must pay card issuer a fee of 2 to 4% for processing the transactions.
Retailer records the sale in a similar manner as checks deposited from cash sale.
LO 4 Describe the entries to record the disposition of accounts receivable.

5. Disposing of Accounts Receivable
E9-7 (b) On May 10, Dale Company sold merchandise for $3,500 and accepted the customer’s America Bank MasterCard. America Bank charges a 4% service charge for credit card sales. Prepare the entry on Dale Company’s books to record the sale of merchandise.
($3,500 x 4% = $140)
Cash 3,360
Service charge expense 140
Sales 3,500
LO 4 Describe the entries to record the disposition of accounts receivable.
See Do it page

6. Notes Receivable
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.
Promissory notes may be used:
when individuals and companies lend or borrow money,
when amount of transaction and credit period exceed normal limits, or
in settlement of accounts receivable.
LO 5 Compute the maturity date of and interest on notes receivable.

7. Notes Receivable
To the Payee, the promissory note is a note receivable.
To the Maker, the promissory note is a note payable.
Illustration 9-10
LO 5 Compute the maturity date of and interest on notes receivable.

8. Notes Receivable Determining the Maturity Date Computing Interest
Note expressed in terms of
Months
Days
Computing Interest
Illustration 9-13
LO 5 Compute the maturity date of and interest on notes receivable.

9. Recognizing Notes Receivable
E9-10 Orosco Supply Co. has the following transactions related to notes receivable during the last 2 months of 2008.
Nov. 1 Loaned $15,000 cash to Sally Givens on a 1-year, 10% note.
Dec. 11 Sold goods to John Countryman, Inc., receiving a $6,750, 90-day, 8% note.
Dec. 16 Received a $4,000, 6-month, 9% note in exchange for Bob Reber’s outstanding accounts receivable.
Dec. 31 Accrued interest revenue on all notes receivable.
Instructions
(a) Journalize the transactions for Orosco Supply Co.
LO 6 Explain how companies recognize notes receivable.

10. Recognizing Notes Receivable
E9-10 Nov. 1 Loaned $15,000 cash to Sally Givens on a 1-year, 10% note. Dec. 11 Sold goods to John Inc., receiving a $6,750, 90-day, 8% note. Dec. 16 Received a $4,000, 6-month, 9% note in exchange for Bob ‘s outstanding accounts receivable.
Nov. 1
Notes receivable 15,000
Cash 15,000
Dec. 11
Notes receivable 6,750
Sales 6,750
Dec. 16
Notes receivable 4,000
Accounts receivable 4,000
LO 6 Explain how companies recognize notes receivable.

11. Recognizing Notes Receivable
E9-10 Dec. 31 Accrued interest revenue on all notes receivable.
Dec. 31
Interest receivable 295
Interest revenue 295
LO 6 Explain how companies recognize notes receivable.

12. Notes Receivable Valuing Notes Receivable
Like accounts receivable, companies report short- term notes receivable at their cash (net) realizable value.
Estimation of cash realizable value and bad debts expense are done similarly to accounts receivable.
Allowance for Doubtful Accounts is used.
LO 7 Describe how companies value notes receivable.

13. Notes Receivable Disposing of Notes Receivable
Notes may be held to their maturity date.
Maker may default and payee must make an adjustment to the account.
Holder speeds up conversion to cash by selling the note receivable.
LO 8 Describe the entries to record the disposition of notes receivable.

14. Notes Receivable Disposing of Notes Receivable
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.
A dishonored note receivable is no longer negotiable.
LO 8 Describe the entries to record the disposition of notes receivable.