Chapter 9-1 ACCOUNTING FOR RECEIVABLES Accounting Principles, Eighth Edition CHAPTER 9

Chapter Identify the different types of receivables Explain how companies recognize accounts receivable Distinguish between the methods and bases companies use to value accounts receivable Describe the entries to record the disposition of accounts receivable Compute the maturity date of and interest on notes receivable Explain how companies recognize notes receivable Describe how companies value notes receivable Describe the entries to record the disposition of notes receivable Explain the statement presentation and analysis of receivables. Study Objectives

Chapter 9-3 Types of Receivables Accounts receivable Notes receivable Other receivables Accounts Receivable Notes Receivable Statement Presentation and Analysis PresentationAnalysis Determining maturity date Computing interest Recognizing notes receivable Valuing notes receivable Disposing of notes receivable Accounting for Receivables Recognizing accounts receivable Valuing accounts receivable Disposing of accounts receivable

Chapter 9-4 Amounts due from individuals and other companies that are expected to be collected in cash. Amounts owed by customers that result from the sale of goods and services. (30-60 days) Accounts Receivable Types of Receivables Claims for which formal instruments of credit are issued as proof of debt. “Nontrade” (interest, loans to officers, advances to employees, and income taxes refundable). Notes Receivable Other Receivables See page 384

Chapter 9-5 Three accounting issues: 1.Recognizing accounts receivable. 2.Valuing accounts receivable. 3.Disposing of accounts receivable. Accounts Receivable The following exercise was illustrated in Chapter 5. For simplicity, inventory and cost of goods sold have been omitted. Recognizing Accounts Receivable

Chapter 9-6 E5-5 E5-5 Presented are transactions related to Wheeler Company. 1.On December 3,Wheeler Company sold $500,000 of merchandise to Hashmi Co., terms 2/10, n/30, FOB shipping point. 2.On December 8, Hashmi Co. was granted an allowance of $27,000 for merchandise purchased on December 3. 3.On December 13,Wheeler Company received the balance due from Hashmi Co. Instructions: Prepare the journal entries to record these transactions on the books of Wheeler Company using a perpetual inventory system. Recognizing Accounts Receivable LO 2 Explain how companies recognize accounts receivable.

Chapter 9-7 E5-5 E5-5 Prepare the journal entries for Wheeler Company. 1.On December 3, Wheeler Company sold $500,000 of merchandise to Hashmi Co., terms 2/10, n/30, FOB shipping point. Accounts receivable500,000Dec. 3 Sales500,000 LO 2 Explain how companies recognize accounts receivable. Recognizing Accounts Receivable

Chapter 9-8 E5-5 E5-5 Prepare the journal entries for Wheeler Company. 2. On December 8, Hashmi Co. was granted an allowance of $27,000 for merchandise purchased on December 3. Sales returns and allowances 27,000Dec. 8 Accounts receivable27,000 LO 2 Explain how companies recognize accounts receivable. Recognizing Accounts Receivable

Chapter 9-9 E5-5 E5-5 Prepare the journal entries for Wheeler Company. 3. On December 13, Wheeler Company received the balance due from Hashmi Co. Cash463,540Dec. 13 Accounts receivable473,000 Sales discounts9,460 ** [($500,000 – $27,000) X 2%] ** * ($500,000 – $27,000) * *** *** ($473,000 – $9,460) Recognizing Accounts Receivable See another illustration page 385

Chapter 9-10 Valuing Accounts Receivables Are reported as a current asset on the balance sheet. Are reported at the amount the company thinks they will be able to collect. Sales on account raise the possibility of accounts not being collected. Valuation can be difficult because an unknown amount of receivables will become uncollectible. LO 3 Distinguish between the methods and bases companies use to value accounts receivable. Accounts Receivable

Chapter 9-11 Allowance Method Losses are estimated: better matching. receivable stated at net realizable value. required by GAAP. Methods of Accounting for Uncollectible Accounts Direct Write-Off Theoretically undesirable: no matching. receivable not stated at net realizable value. not acceptable for financial reporting. Valuing Accounts Receivable LO 3 Distinguish between the methods and bases companies use to value accounts receivable. See illustration page 386

Chapter 9-12 Assets Current Assets: Cash $ 346 Accounts receivable500 Less: Allowance for doubtful accounts Merchandise inventory 812 Prepaid expenses40 Total current assets1,673 Total current assets1,673 LO 3 Distinguish between the methods and bases companies use to value accounts receivable. Presentation of Accounts Receivable

Chapter 9-13 Assets Current Assets: Cash $ 346 Accounts receivable, net of $25 allowance for doubtful accounts 475 for doubtful accounts 475 Merchandise inventory 812 Prepaid expenses40 Total current assets1,673 Total current assets1,673 LO 3 Distinguish between the methods and bases companies use to value accounts receivable. Presentation of Accounts Receivable