1. Chapter 9 Receivables and Payables
HFT 2401
Chapter 9
Receivables and Payables

2. Receivables Accounts Receivable
Very Liquid Current Assets – Turn to cash in 30 to 60 days
Trade Receivables – From the “ordinary” course of business – usually unsecured
Guest Ledger
City Ledger
Creditor – the holder of the receivable
Debtor – the one who owes the money

3. Collection The sale is not “complete” until the cash is in the bank
Uncollectible accounts – bad debt losses
Credit checking procedures
Collections
Courtesy letters
Phone calls
Collection agency / attorney

4. Uncollectible Accounts
Direct Write Off Method
Write off at the time it is deemed uncollectible
Allowance Method
Accrues a percentage based on history
Preferred as it is more applicable to the matching principle
Carrying value – net on the books
Percentage of sales method – credit versus cash sales

5. Receivables Aging Usually done in 30 day increments
Used on a historical basis to determine allowance entry
Also used for cash forecasting purposes
Used by credit managers to determine continued credit worthiness of account

6. Notes Receivable Written promises to receive cash in the future
Usually interest bearing
Can be secured by an asset
Maker – the one promising to pay
Payee – the one who is owed
Interest = Principal x Rate x Time

7. Notes Receivable Accounts receivable can be converted
Dishonored notes – written off the books
Discounting – Sell the value of the note to a third party for collection
Also called factoring
Increase cash flow
Discount = Maturity Value x Discount x Discount Period

8. Payables
Accounts Payable – Unsecured debt resulting from the ordinary course of business
Invoices
Usually due in 30 days or less
Cash discounts can be offered
Notes Payable – Secured debt
Non-interest bearing
Interest bearing
Interest = Principal x rate x time

9. Homework
Problem 7
Problem 8
Problem 13