ตั๋วเงินรับและลูกหนี้ (Note and Account Receivable) Chapter 7 2

Note Receivable ประเภท แบ่งตามลักษณะของตราสาร แบ่งตามลักษณะดอกเบี้ย ตั๋วสัญญาใช้เงิน ตั๋วแลกเงิน แบ่งตามลักษณะดอกเบี้ย ระบุอัตราดอกเบี้ย ไม่ระบุอัตราดอกเบี้ย

PROMISSORY NOTES A promissory note is a written promise to pay a specified amount of money on demand or at a definite time. The party making the promise is the maker. The party to receive payment is the payee.

MATURITY & INTEREST – NOTES RECEIVABLE When the life of the note is expressed in terms of days, you need to count the days. In counting, the date of issue is omitted but the due date is included. Example: The maturity date of a 60-day note dated July 17 is: Term of note 60 days July (31-17) -14 days August -31days Maturity date: September 15

COMPUTING INTEREST The formula for computing interest on an interest-bearing note is: The interest rate specified on the note is an annual rate of interest. Face Value of Note Annual Interest Rate Time in Terms of One Year Interest X X =

COMPUTATION OF INTEREST The interest rate specified $ 730 X 18% X 120/360 = $ 43.80 $1,000 X 15% X 6/12 = $ 75.00 $2,000 X 12% X 1/1 = $240.00 The interest rate specified is the annual rate.

RECOGNIZING NOTES RECEIVABLE ขายสินค้าและได้รับตั๋วสัญญาใช้เงินเป็นการชำระหนี้จากผู้ซื้อ General Journal Date Account Titles Debit Credit April 1 Notes Receivable 1,000 Sales 1,000

RECOGNIZING NOTES RECEIVABLE Notes receivable are recorded at FACE VALUE General Journal Date Account Titles Debit Credit May 1 Notes Receivable 1,000 Accounts Receivable – Brent Company 1,000 Wilma Company receives a $1,000, 2-month, 12% promissory note from Brent Company to settle an open account.

VALUATION OF NOTES RECEIVABLE N/R are recorded at face value. Allowance for Doubtful Accounts used to record estimated uncollectible accounts. N/R reported on the balance sheet at net realizable value. Gross N/R – Allowance = Net Realizable Value

DISPOSING OF NOTES RECEIVABLE HONORED NOTE A note is honored when it is paid in full at its maturity date. For an interest-bearing note, the maturity amount is the face value plus interest. Date Account Titles Debit Credit Nov 1 Cash 10,375 Notes Receivable 10,000 Interest Revenue 375 (collection of Higley, Inc. note) Betty Co. lends Higley Inc. $10,000 on June 1, accepting a 5-month, 9% interest-bearing note. Betty collects the maturity value of the note from Higley on Nov 1.

HONORED NOTE RECEIVABLE ACCRUING INTEREST -- HONORED NOTE RECEIVABLE Date Account Titles Debit Credit Sept 30 Interest Receivable ($10,000 x 9% x 4/12) 300 Interest Revenue (accrue 4 month’s interest on Higley, Inc. note) If Betty Co. prepares financial statements on September 30, interest for 4 months, would be accrued. Interest receivable is a current asset

ACCRUING INTEREST -- HONORED NOTE RECEIVABLE Date Account Titles Debit Credit Nov 1 Cash 10,375 Notes Receivable 10,000 Interest Receivable 300 Interest Revenue 75 (collection of note at maturity) When interest has been accrued, it is necessary to credit Interest Receivable at maturity.

This scenario assumes the note will eventually be collected. DISHONOR OF NOTE RECEIVABLE Date Account Titles Debit Credit Nov 1 A/R—Higley, Inc. 10,375 Notes Receivable 10,000 Interest Revenue 375 (record dishonor of Higley note) A dishonored note is a note that is not paid in full at maturity. Since the payee still has a claim against the maker of the note, the balance in Notes Receivable is usually transferred to Accounts Receivable. NOTE: This scenario assumes the note will eventually be collected.

DISHONOR OF NOTE RECEIVABLE Date Account Titles Debit Credit Nov 1 Allowance for doubtful accounts 10,000 Notes Receivable (record dishonor of Higley note) If there is no hope of collection, The face value eliminated, and the allowance is debited. Also, no interest would be accrued.

เช็ครับลงวันที่ล่วงหน้า บันทึกบัญชีเป็นเช็คลงวันที่ล่วงหน้าหรือเป็นตั๋วเงินรับหรือไม่บันทึกการรับเช็คจนกว่าเช็คครบกำหนดขึ้นเงิน เมื่อรับเช็คลงวันที่ล่วงหน้าจากลูกหนี้หรือเมื่อขายสินค้า เดบิต เช็คลงวันที่ล่วงหน้า/ตั๋วเงินรับ xx เครดิต ลูกหนี้/ขาย xx เมื่อเช็คครบกำหนด เดบิต ธนาคาร xx เครดิต เช็คลงวันที่ล่วงหน้า/ตั๋วเงินรับ xx

Receivables ลูกหนี้การค้า( Account Receivables) ลูกหนี้อื่น(Others)

(merchandise returned) RECOGNIZING A/R A classic general journal sequence for credit sales. Date Description Debit Credit July 1 A/R—Polo Company 1000 Sales (sales on account) July 5 Sales returns & allowances 100 (merchandise returned) July 11 Cash 882 Sales Discounts 18 900 (collection of A/R)

VALUATION OF A/R Receivables are current assets on the balance sheet They are stated at net realizable value, the amount expected to be received in cash. Uncollectible A/R are accounted for using two methods Direct Write-Off Method Allowance Method

DIRECT WRITE-OFF METHOD No entries are made for bad debts until an account is determined to be uncollectible at which time the loss is charged to bad debts expense. Bad debt expense shows only actual losses. Not acceptable for financial reporting purposes unless losses are insignificant. Operating expense on the income statement Bad debts expense

DIRECT WRITE-OFF METHOD General Journal Date Account Titles Debit Credit Dec. 12 Bad Debts Expense 200 Accounts Receivable – M.E. Doran 200 Warden Co. writes off M. E. Doran’s $200 balance as uncollectible on December 12. When this method is used, Bad Debts Expense will show only actual losses from uncollectibles.

The allowance method is required when bad debts are material. Uncollectible accounts are estimated The expense is matched against sales in the same accounting period. Uncollectible accounts expense = bad debts expense

RECORDING ESTIMATED UNCOLLECTIBLES ALLOWANCE METHOD RECORDING ESTIMATED UNCOLLECTIBLES General Journal Date Account Titles Debit Credit Dec. 31 Bad Debts Expense 12,000 Allowance for Doubtful Accounts 12,000 Estimated uncollectibles are debited to Bad Debts Expense and credited to Allowance for Doubtful Accounts at the end of each period.

RECORDING A WRITE-OFF ALLOWANCE METHOD General Journal Date Account Titles Debit Credit Mar. 1 Allowance for Doubtful Accounts 500 Accounts Receivable - R. A. Ware 500 Actual uncollectibles are debited to Allowance for Doubtful Accounts and credited to Accounts Receivable at the time the specific account is written off.

RECORDING A RECOVERY ALLOWANCE METHOD To recover an account that has been written off: 1 reverse the write-off entry. General Journal Date Account Titles Debit Credit July 1 Accounts Receivable – R. A. Ware 500 Allowance for Doubtful Accounts 500 2 record the collection in the usual manner. General Journal Date Account Titles Debit Credit July 1 Cash 500 Accounts Receivable 500

BASIS FOR ESTIMATING UNCOLLECTIBLES Percentage of Receivables ALLOWANCE METHOD BASIS FOR ESTIMATING UNCOLLECTIBLES Two methods of estimating uncollectible accounts comply with GAAP. Percentage of Sales X Percentage of Receivables √ Emphasis on Income Statement Relationships Emphasis on Balance Sheet Relationships Uses aging schedule

PERECENTAGE OF RECEIVABLES BASIS ALLOWANCE METHOD PERECENTAGE OF RECEIVABLES BASIS Bad debt expense based on % of the ending balance in A/R. The adjusting entry is the difference between the required balance and the existing balance in the allowance account. Estimates NRV of receivables. General Journal Date Account Titles Debit Credit Dec. 1 Bad Debts Expense 1,700 Allowance for Doubtful Accounts 1,700 If the trial balance shows Allowance for Doubtful Accounts with a credit balance of $528, an adjusting entry for $,1,700 ($2,228 - $528) is necessary.

CREDIT CARD SALES Three parties are involved with credit card sales: The retailer pays the credit card issuer a fee of 2-6% of the invoice price. Sales from Visa, MasterCard, and Discover are treated differently than American Express & Diners Club Credit card issuer Retailer Customer

VISA, MASTERCARD, & DISCOVER Considered cash sales by the retailer. Upon receipt of credit card sales slips from a retailer, the bank adds the amount to the seller’s bank balance. General Journal Date Account Titles Debit Credit Cash 970 Service Charge Expense 30 Sales 1,000 Barbara Hardy purchases CD’s for her restaurant from Ty Parker Music Co. for $1,000 using her VISA First Bank Card. First Bank charges a 3% fee.

PRESENTATION & ANALYSIS FINANCIAL STATEMENT PRESENTATION & ANALYSIS In the balance sheet, short-term receivables are reported in the current assets section below short-term investments. Report both the gross amount of receivables and the allowance for doubtful accounts. Accounts receivable $1,200,000 Less: allowance for doubtful accounts (48,000) Accounts receivable, net $1,152,000

End of Chapter 7 4