Tugas GSLC Summary About Accounting For Receivables: Receivable

TUGAS GSLC
Summary about Accounting for Receivables

1. Identify the different types of receivables. There are 3 type of receivable:
a. Accounts : Amounts customers owe on account that result from the
sale of goods and services. Ex : Account Receivable
b. Notes : Written promise (formal instrument) for amount to be
received. Also called trade receivables. Ex : Notes Receivable
c. Other : Nontrade receivables such as interest, loans to officers, advances to
employees, and income taxes refundable. Ex : Interest Receviable
2. Explain how companies recognize accounts receivable:

Companies record accounts receivable when they provide a service on account or at the
point of sale of merchandise on account. Accounts receivable are reduced by sales returns
and allowances. Cash discounts reduce the amount received on accounts receivable.
When interest is charged on past due receivable, the company adds this interest to the
accounts receivable balance and recognizes it as interest revenue.
3. Distinguish between the methods and bases companies use to value accounts
receivable.
There are two methods of accounting for uncollectible accounts: the allowance method
and the direct write-off method. Companies may use either the percentage of receivables
basis to estimate uncollectible accounts using the allowance method. The percentage of
sales basis emphasizes the expense recognition (matching) principle. The percentage of
receivables basis emphasizes the cash realizable value of the accounts receivable. An
aging schedule is often used with this basis.
4. Describe the entries to record the disposition of accounts receivable.
When a company collects an account receivable, it credits Account receivable. When a
company sells (factors) an account receivable, a service charge expense reduces the
amount received.
5. Compute the maturity date of and interest on notes receivable.

For a note stated in months, the maturity date is found by counting the months from the
date of issue. For a note stated in days, the number of days is counted, omitting the issue
date and counting the due date. The formula for computing interest is: Face value x
Interest rate x Time.
6. Explain how companies recognize notes receivable.

Companies record notes receivable at face value. In some cases, it is necessary to accrue
interest prior to maturity. In this case, companies debit Interest Receivable and credit
Interest Revenue.
7. Describe how companies value notes receivable.

As with accounts receivable, companies report notes receivable at their cash (net)
realizable value. The notes receivable allowance account is Allowance for Doubtful
Accounts. The computation and estimations involved in valuing notes receivable at cash
realizable value, and in recording the proper amount of bad debt expense and related
allowance, are similar to those for account receivable.
8. Describe the entries to record the disposition of notes receivable.

Notes can be held to maturity. At that time the face value plus accrued interest is due and
the note is removed from the accounts. In many cases, the holder of the note speeds up
the conversation by selling the receivable to another party (a factor). In some situations,
the maker of the note dishonors the note (defaults), in which case the company transfers
the note and accrued interest to an account receivable or writes off the note.
9. Explain the statement presentation and analysis of receivables.

Companies should identify in the statement of financial position or in the notes to the
financial statements each major type of receivable. Short-term receivables are considered
current assets. Companies report the gross amount of receivables and the allowance for
doubtful accounts. They report bad debt and service charge expenses in the income
statement as operating (selling) expenses; interest revenue appears under other income
and expense in the non-operating activities section of the statement. Managers and
investors evaluate accounts receivable for liquidity by computing a turnover ratio and an
average collection period.

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TUGAS GSLC

Summary about Accounting for Receivables

2. Explain how companies recognize accounts receivable:

5. Compute the maturity date of and interest on notes receivable.

6. Explain how companies recognize notes receivable.

7. Describe how companies value notes receivable.

8. Describe the entries to record the disposition of notes receivable.

9. Explain the statement presentation and analysis of receivables.

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