Accounting for Receivables Chapter Seven Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.

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Accounting for Receivables Chapter Seven Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

7-1 Revenue Recognition Event 1 Revenue Recognition During 2011, Allen’s Tutoring Services, a service company, renders services on account for customers in the amount of $14,000.

7-2 Collection for Receivables Event 2 Collection of Receivables During the year, ATS collects cash of $12,500 on its accounts receivable.

7-3 Recognizing Uncollectible Accounts Expense Event 3 Recognizing Uncollectible Accounts Expense Based upon past experience, ATS estimates that $75 of its current accounts receivable balance will eventually prove to be uncollectible.

7-4 Subsequent Period Event 1 Write-Off of an Uncollectible Account Receivable During 2012, ATS determines that an account receivable of $70 will not be collected. The company elects to write-off the account.

7-5 Accounts Receivable Event 2 Revenue Recognition During 2012, ATS renders services on account in the amount of $10,000. Event 3 Collection on Accounts Receivable During 2012, ATS collects $8,430 on its accounts receivable.

7-6 Collect on a Written-off Account Event 4 Reinstatement of Account Written-Off Of the accounts receivable previously written-off, it turns out that the company will collect $10. Event 5 Collection of Recovered Amount Of the accounts receivable previously written- off, it turns out that the company will collect $10.

7-7 Year-End Adjusting Entries Event 6 Adjustment for Bad Debts Expense At the end of 2012, ATS estimates that its bad debts will amount to 1.35% of its service revenue.

7-8 Financial Statements

7-9 Notes Receivable Event 1 Loan of Money On November 1, 2011, ATS loans $15,000 cash to Stanford Cummings. Cummings issues ATS a note promising to repay the loan, with interest, in one year.

7-10 Interest Revenue Event 2 Recognition of Interest Revenue At the end of 2011, ATS must accrue interest on its note receivable. $15,000 × 6% × 2/12 = $150 interest revenue

7-11 Collection of a Note Receivable Event 3 Collection of Principal and Interest On November 1, 2012, ATS collects the principal and interest due on the note receivable. ATS first recognizes interest revenue for the 10 months of $15,000 × 6% × 10/12 = $750 interest revenue

7-12 Collection of a Note Receivable Event 3 Collection of Principal and Interest Now that the entire $900 of interest receivable has been accrued, ATS records the collection of $15,900 in principal and interest on the note.

7-13 Credit Card Sales Event 1 Recording a Credit Card Sale ATS accepts a credit card in payment for services of $1,000. The credit card company charges a fee of 5% of the transaction.

7-14 Credit Card Sales Event 2 Collection of a Credit Card Receivable ATS collects the full amount due from the credit card company.