1. Chapter 8 Receivables Accounting, 21st Edition Warren Reeve Fess
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PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University

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3. After studying this chapter, you should be able to:
Objectives
1. List the common classifications of receivables.
2. Summarize and provide examples of internal control procedures that apply to receivables.
3. Describe the nature of and the accounting for uncollectible receivables.
4. Journalize the entries for the allowance method of accounting for uncollectibles, and estimate uncollectible receivables based on sales and on an analysis of receivables.
After studying this chapter, you should be able to:

4. Objectives
5. Journalize the entries for the direct write-off of uncollectible receivables.
6. Describe the nature and characteristics of promissory notes.
7. Journalize the entries for notes receivable transactions.
8. Prepare the Current Assets presentation of receivables on the balance sheet.
9. Compute and interpret the accounts receivable turnover and the number of days’ sales in receivables.

5. 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—include interest receivable, taxes receivable, and receivables from officers and employees.

6. Separating the Receivable Functions
Customer
Credit
Info.
Credit Approval
Collections
Sales
Acctg. Info
Goods or services
Invoice
Acctg.
Info.
Accounting

7. Uncollectible Receivables
Companies often sell their receivables to other companies. This transaction is called factoring the receivables, and the buyer of the receivables is called a factor.

8. Uncollectible Receivables
The Allowance Method
This method is consistent with the matching principle.
Management makes an estimate each year of the portion of accounts receivable that may not be collectible.
Uncollectible Accounts Expense is debited and Allowance for Doubtful Accounts is credited.
Actual accounts that prove to be uncollectible are debited to Allowance for Doubtful Accounts and credited to Accounts Receivable.

9. The Allowance Method
On December 31, Cynthia Richards estimates that a total of $4,000 of the $105,000 balance in her company’s Accounts Receivable will eventually be uncollectible.
Adjusting Entry
Dec. 31 Uncollectible Accounts Expense
Allowance for Doubtful Accounts

10. The Direct Write-Off Method
May 10 Uncollectible Accounts Expense
Accounts Receivable—D. L. Ross
To write off an uncollectible account.
On May 10, D. L. Ross’ account was determined to be uncollectible. The $420 balance is written off the books.

11. The Direct Write-Off Method
Nov. 1 Accounts Receivable—D. L. Ross
Uncollectible Accounts Expense
To reinstate account written off on May 10.
1st Entry
In November, D. L. Ross remits a check for $420 in payment of his account.

12. A second entry is needed to record receipt of the cash.
The Direct Write-Off Method
Nov. 1 Cash
Accounts Receivable—D. L. Ross
To record collection on account.
2nd Entry
A second entry is needed to record receipt of the cash.

13. Notes Receivable Payee Maker H. B. Lane $_____________ 2,500.00
Fresno, California______________20___
March
________________ _AFTER DATE _______ PROMISE TO PAY TO
Ninety days We
THE ORDER OF ____________________________________________
Judson Company
Two thousand five hundred 00/
_________________________________________________DOLLARS
Maker
PAYABLE AT ______________________________________________
City National Bank
VALUE RECEIVED WITH INTEREST AT ____
10%
NO. _______ DUE___________________
June 14, 2006
H. B. Lane
TREASURER, WILLIARD COMPANY

14. Notes Receivable
A promissory note is a written document containing a promise to pay:
a specific amount of money (principal)
to a specific person or company (payee)
at a specific place
on a specific date or upon demand
plus interest at a specific percentage of the principal (face) amount per year

15. Let’s determine the due date for a 90-day note dated March 16.
Notes Receivable
Let’s determine the due date for a 90-day note dated March 16.
The date a note is to be paid is called the due date. It is also referred to as the maturity date.