1. CENTURY 21 ACCOUNTING © Thomson/South-Western 1 LESSON 10-1 CHAPTER 10: ACCOUNTING FOR NOTES RECEIVABLE, UNEARNED REVENUE, AND ACCRUED REVENUE Objectives: Define accounting terms related to notes receivable, unearned revenue, and accrued revenue Identify accounting concepts and practices related to notes receivable, unearned revenue, and accrued revenue Journalize transactions for notes receivable Journalize adjusting and reversing entries for unearned revenue initially recorded as revenue Journalize adjusting and reversing entries for accrued revenue

2. CENTURY 21 ACCOUNTING © Thomson/South-Western 2 LESSON 10-1 LESSON 10-1: Notes Receivable Intro: Special accounting procedures are needed at end of fiscal  Note receivable issued in one fiscal period with maturity date in following 2 types of revenue: Revenue received in one fiscal period, but not earned until the next Revenue earned in one, but not received until the next Matching expenses with revenue Correct amount of revenue earned reported on financial stmts

3. CENTURY 21 ACCOUNTING © Thomson/South-Western 3 LESSON 10-1 ISSUING A NOTE RECEIVABLE FOR AN ACCOUNT RECEIVABLE April 3. Accepts a 30-day, 12% note from Duane Jansen for an extension of time on his account, $300.00. Note Receivable No. 11. page 291

4. CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 10-1 ISSUING A NOTE FOR A SALE April 4. Accepts a 90-day, 12% note from Mark Carver for the sale of an appliance, $450.00. Note Receivable No. 12. page 291

5. CENTURY 21 ACCOUNTING © Thomson/South-Western 5 LESSON 10-1 1.Calculate interest income. 2.Record note. 3.Record interest income. 4.Enter total cash received. RECEIVING CASH FOR A NOTE RECEIVABLE page 292 May 3. Received cash for the maturity value of Note Receivable No. 11: principal, $300.00, plus interest, $3.00; total, $303.00. Receipt No. 452. Principal Interest Rate Fraction of Year =Interest ×× $300.0012% 30 360 =$3.00 ×× 4 2 3 1

6. CENTURY 21 ACCOUNTING © Thomson/South-Western 6 LESSON 10-1 RECORDING A DISHONORED NOTE RECEIVABLE Dishonored note: note that is not paid when due Still owe money to company Notes receivable account should include only amount of notes that is expected to be collected Journal entry is needed to transfer the maturity value of the note to accounts receivable Does not cancel debt and does not inform that account was transferred  try to collect debt Carried on records until paid OR declared uncollectible

7. CENTURY 21 ACCOUNTING © Thomson/South-Western 7 LESSON 10-1 1.Calculate interest income. 2.Record the debit for the total amount receivable. 3.Record a credit for the note principal. 4.Record a credit for the interest income. RECORDING A DISHONORED NOTE RECEIVABLE page 293 June 1. Ruth Javinsky dishonored Note Receivable No. 8, a 30-day, 12% note, maturity value due today; principal, $250.00; interest, $2.50; total, $252.50. Memorandum No. 120. PrincipalInterest RateFraction of Year=Interest ×× $250.0012% 30 360 =$2.50 ×× 4 2 3 1

8. CENTURY 21 ACCOUNTING © Thomson/South-Western 8 LESSON 10-1 RECEIVING CASH FOR A DISHONORED NOTE RECEIVABLE page 294 Maturity Value Interest Rate Fraction of Year = Additional Interest ×× 1.Calculate number of days from maturity date to date of payment. 2.Calculate additional interest income. TimeNumber of Days June 1 through 3029(30 – 1 = 29) July31 August31 September 1 through 3030 Total number of days121days1 $252.5012% 121 360 = $10.18 ×× 2 September 30. Received cash from Ruth Javinsky for dishonored Note Receivable No. 8: maturity value, $252.50, plus additional interest, $10.18; total, $262.68. Receipt No. 201.

9. CENTURY 21 ACCOUNTING © Thomson/South-Western 9 LESSON 10-1 3.Record payment of the account receivable. 4.Record additional interest income. 5.Enter total cash received. RECEIVING CASH FOR A DISHONORED NOTE RECEIVABLE page 294 3 4 5

10. CENTURY 21 ACCOUNTING © Thomson/South-Western 10 LESSON 10-1 TERMS REVIEW notes receivable dishonored note TO DO: Work Together, pg 296 On your own, pg 296 page 296

11. CENTURY 21 ACCOUNTING © Thomson/South-Western 11 LESSON 10-1 LESSON 10-2 - Unearned and Accrued Revenue Unearned revenue: received in one fiscal period but not earned until the next AKA: Deferred revenue May be initially recorded as liability OR revenue EX) Receive Rent pymt for Dec. Jan. Feb. on Dec. 1 Recorded as rent income and added to balance of Rent Income account Only that part of rent actually earned should be reported  adjusting entry is needed to separate earned and unearned portions of rent Jan and Feb  Unearned Rent (current liability account)

12. CENTURY 21 ACCOUNTING © Thomson/South-Western 12 LESSON 10-1 2.Credit the liability account (Unearned Rent). ADJUSTING ENTRY FOR UNEARNED REVENUE INITIALLY RECORDED AS A REVENUE page 297 1 2 Dec. 1: received $6000 rent for Dec, Jan, Feb *Initially recorded as revenue (DR: Cash; CR: Rent Income) ADJUSTING ENTRY: 1. Debit the revenue account (Rent Income).

13. CENTURY 21 ACCOUNTING © Thomson/South-Western 13 LESSON 10-1 1.Debit the liability account. 2.Credit the revenue account. REVERSING ENTRY FOR UNEARNED REVENUE INITIALLY RECORDED AS A REVENUE page 298 1 2 *Dec. 31, Rent Income is closed  balance is 0 *If adjusting entry creates balance in asset or liability  must reverse *Unearned rent  has a balance created by the adjusting entry *Amount of unearned revenue must be returned to account where originally recorded

14. CENTURY 21 ACCOUNTING © Thomson/South-Western 14 LESSON 10-1 Accrued Revenue Accrued Revenue: earned in one fiscal period but received later Ex) Business accepts 30-day note on Dec. 15  earns interest for 16 days in Dec. Will not receive interest income until maturity in January Accrued interest is calculated from date of note through end of year Accrued interest for all notes is totaled to compute adjusting entry amount Increases balance of Interest Income to include interest earned, but not in cash  Interest Receivable

15. CENTURY 21 ACCOUNTING © Thomson/South-Western 15 LESSON 10-1 Principal Interest Rate Fraction of Year = Accrued Interest Income ×× Note $500.0010% 30 360 =$4.17 ×× 12 $700.0010% 15 360 = 2.92 ×× 13 1.Calculate interest earned on the notes. 2.Record entry to accrue interest income. ADJUSTING ENTRY FOR ACCRUED INTEREST INCOME page 299 1 2 Total accrued interest income, December 31.... $7.09 Note 12 – Dec. 1, 60-day Note 13 – Dec. 16, 30-day

16. CENTURY 21 ACCOUNTING © Thomson/South-Western 16 LESSON 10-1 REVERSING ENTRY FOR ACCRUED INTEREST INCOME page 300 *Interest Income is closed at end of fiscal  0 balance *Interest Receivable has balance  interest earned *Need to reverse entry *Jan. 1  reverse entry that created balance in asset account

17. CENTURY 21 ACCOUNTING © Thomson/South-Western 17 LESSON 10-1 TERMS REVIEW unearned revenue accrued revenue TO DO: Work Together, pg 302 On your own, pg 303 App prob 10-1, 10-2, 10-3 Ch. 10 quiz MONDAY!!! page 302