1. Receivables Notes Receivable and Interest Revenue

2. Receivables Premise:

3. Receivables When you extend credit to customers…

4. Receivables Premise: When you extend credit to customers… you know some customers won’t pay.

5. Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions:

6. Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I.Notes Receivable and Interest

7. Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I.Notes Receivable and Interest II.Uncollectible Accounts

8. Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I.Notes Receivable and Interest II.Uncollectible Accounts Lecture

9. Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I.Notes Receivable and Interest II.Uncollectible Accounts Today

10. Why Notes instead of Accounts Receivable? charge (earn) interest stronger legal claim more liquid -- may be converted to cash  selling A/R called “factoring”  selling Notes Receivable called “discounting”

11. Calculating Interest rate is an annual rate time expressed as a portion of year  government uses 365  many banks use 360  use 360 in homework / class P x R x T

12. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = ???

13. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = ??? $844. = $8.44

14. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = $8.44 You try...

15. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = $8.44 You try... 6% for 30 days =

16. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = $8.44 You try... 6% for 30 days = $4.22

17. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = $8.44 You try... 6% for 30 days = $4.22 12% for 60 days =

18. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = $8.44 You try... 6% for 30 days = $4.22 12% for 60 days = $16.88

19. Determining the (Exact) Due Date Learn the number of days in each month poem method knuckle method counting days if term of note stated in days stated in months

20. Example of Counting Days A 60-day note dated August 17 is due ________. 31 - 17 14 + 30 44 + ?? 60 The note is due October 16.

21. Due Date When Stated in Months RULE: “same day of the month”

22. Examples of Counting Months A two-month note dated August 17 is due ______. October 17

23. Due Date When Stated in Months RULE: “same day of the month” EXCEPTION: how to deal with EOM “last day of month”

24. Examples of Counting Months A two-month note dated August 17 is due ______. October 17 A three-month note dated Nov. 30 is due ______. February 28 A three-month note dated April 30 is due ______. July 30

25. Exercise E9-8 page 388 8/16Sold merchandise to Prentice Berge on account, $4,000. Date Account Title RefDebitCredit 4,000Sales Accounts Receivable - PB4,00016 Should also record reduction in inventory.

26. Exercise E9-8 page 388 Date Account Title RefDebitCredit Notes Receivable18,000 Cash 1 11/1Loaned $18,000 cash to Sally Morgan on a 1-year, 10% note. What about the interest?

27. What about the discount? Ever been lost... … at DisneyWorld? … in a hospital? … in an office building? 11/110/31 You are here! Interest interest

28. Exercise E9-8 page 388 Date Account Title RefDebitCredit Notes Receivable6,000 Sales 1 12/11Sold goods to Sue Adams, Inc., receiving a $6,000, 90-day, 12% note. Should also record reduction in inventory.

29. Exercise E9-8 page 388 8/16Sold merchandise to Prentice Berge on account, $4,000. Date Account Title RefDebitCredit Accounts Receivable - PB4,000 Sales 16 12/16Received a $4,000, 6-month, 12% note on account from Prentice Berge. Date Account Title RefDebitCredit Accounts Receivable - PB 4,000 Notes Receivable16

30. Exercise E9-8 page 388 12/31Accrued interest revenue on all notes receivable. Date Account Title RefDebitCredit Interest Receivable earned Interest Revenue 31 How much?

31. Accrued Interest 11/1 $18,000, one year, 10% 12/11 $6,000, 90 days, 12% 12/16 $4,000, 6 months, 12%

32. Accrued Interest 11/1 12/11 12/16 12/31

33. Accrued Interest 11/1 12/11 12/16 12/31 $18,000 x 10% x ?? $6,000 x 12% x ?? $4,000 x 12% x ??

34. Accrued Interest 11/1 12/11 12/16 12/31 2 / 12 31 - 11 = 20 ½ month

36. Exercise E9-8 page 388 12/31Accrued interest revenue on all notes receivable. Date Account Title RefDebitCredit Interest Receivable earned Interest Revenue 31 How much?

37. Exercise E9-8 page 388 12/31Accrued interest revenue on all notes receivable. Date Account Title RefDebitCredit Interest Receivable$360 Interest Revenue 31 $360

38. Receivables