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Contabilidad Bsica I

ACCO 111
Taller Ocho
Profesor Noel Ortiz Torres

Profesor Noel Ortiz

Universidad del Este, Universidad Metropolitana,Universidad del Turabo

Cuentas por cobrar

Objetivos
1. Identificar los renglones por cobrar y
sus categoras principales.
2. Describir y comparar los dos
mtodos para el reconocimiento de las
cuentas incobrables.
3. Reconocer las notas por cobrar,
calcular los intereses y determinar la
fecha de vencimiento.

Prepare the journal entries for


Wheeler Company .
On December 3, Wheeler Company sold
$500,000 of merchandise to Hashmi Co.,
terms 2/10, n/30, FOB shipping point.
Dec. 3

Accounts receivable
Sales

500,000
500,000

Prepare the journal entries for Wheeler


Company.
On December 8, Hashmi Co. was
granted an allowance of $27,000
for merchandise purchased
on
December 3.
Dec. 8
Sales returns and allowances
Accounts receivable

27,000

27,000

Prepare the journal entries for Wheeler


Company .
On December 13, Wheeler Company
received the balance due from Hashmi
Co.

Dec. 13

Cash

Sales discounts
Accounts receivable

($500,000 $27,000)

**

[($500,000 $27,000) X 2%]

*** ($473,000 $9,460)

463,540 ***
9,460 **

473,000 *

Methods of Accounting for Uncollectible Accounts

Direct Write-Of

Theoretically
undesirable:
no matching.
receivable not stated
at net realizable value.
not acceptable for
financial reporting.

Allowance Method

Losses are estimated:


better matching.
receivable stated at net
realizable value.
required by GAAP.

Presentacin en el
Balance Sheet
Assets

Current Assets:
Cash
Accounts receivable
Less: Allowance for doubtful accounts
Merchandise inventory
Prepaid expenses
Total current assets

500
25

$ 346
475
812
40
1,673

Presentacin en el

Balance Sheet

Assets

Current Assets:
Cash
Accounts receivable, net of $25 allowance
for doubtful accounts
Merchandise inventory
Prepaid expenses
Total current assets

$ 346
475
812
40
1,673

On December 31, 2015, Jarnigan Co.


estimated that 2% of its net sales of $400,000
will become uncollectible.
December 31

($400,000 x 2% = 8,000)

Bad debt expense


Allowance for doubtful accounts

8,000
8,000

On May 11, 2015, Jarnigan Co. determined that Terry Fryes account was
uncollectible and wrote off $1,100. On June 12, 2015, Frye paid the amount
previously written off

May 11 (write-of)
Allowance for doubtful accounts

1,100

Accounts receivable

1,100

June 12 (recovery)
Accounts receivable
Allowance for doubtful accounts
Cash
Accounts receivable

1,100
1,100
1,100
1,100

Valuing
Valuing Accounts
Accounts Receivable
Receivable
Credit sales

Example Data

$500,000

Estimated % of credit sales uncollectible1.25%


Accounts receivable balance
Estimated % of A/R not collected

$72,500
8%

Unadjusted balance in Allowance for Doubtful Accounts:


Case 1
$150 (credit balance)
Case 2
$150 (debit balance)

Valuing
Valuing Accounts
Accounts Receivable
Receivable
Percentage of Sales
Case 1
Actual balance (credit)

(150)

Case 2
150

Estimated uncollectible

(6,250)

(6,250)

Ending balance

(6,400)

(6,100)

The Allowance for Doubtful Accounts has an ending balance of


$6,400 in Case 1 and $6,100 in Case 2.

Valuing
Valuing Accounts
Accounts Receivable
Receivable
Percentage of Receivables

Accounts receivable

$ 72,500

Estimated percentage uncollectible

Required balance in allowance account

What will be the amount of the adjusting entry?

8%
5,800

Valuing
Valuing Accounts
Accounts Receivable
Receivable
Percentage of Receivables
Case 1
Actual balance (credit)

Case 2

(150)

150

Desired balance

(5,800)

(5,800)

Adjustment

(5,650)

(5,950)

Journal entry Case 1:


Bad debt expense
Allowance for doubtful accounts

5,650
5,650

Valuing
Valuing Accounts
Accounts Receivable
Receivable
Percentage of Receivables
Case 1
Actual balance (credit)

Case 2

(150)

150

Desired balance

(5,800)

(5,800)

Adjustment

(5,650)

(5,950)

Journal entry Case 2:


Bad debt expense
Allowance for doubtful accounts

5,950
5,950

Valuing
Valuing Accounts
Accounts Receivable
Receivable
When estimating losses using Percentage of Receivables,
companies often prepare an aging schedule, which classifies
customer balances by the length of time they have been unpaid.

Valuing
Valuing Accounts
Accounts Receivable
Receivable
Summary
Percentage of Sales approach:

Focus on Bad debt expense estimate, any


balance in the allowance account is ignored.
Method achieves a matching of cost and
revenues.
Percentage of Receivables approach:

Accurate valuation of receivables on the balance


sheet.
Method may also be applied using an aging
schedule.

(a) On March 3, Cornwell Appliances sells $680,000 of its

receivables to Marsh Factors Inc. Marsh Factors assesses a


finance charge of 3% of the amount of receivables sold.
Prepare the entry on Cornwell Appliances books to record
the sale of the receivables.

($680,000 x 3% = $20,400)
Cash
Service charge expense
Accounts receivable

659,600
20,400
680,000

(b) On May 10, Dale Company sold merchandise for $3,500 and
accepted the customers America Bank MasterCard. America Bank
charges a 4% service charge for credit card sales. Prepare the entry on
Dale Companys books to record the sale of merchandise.
($3,500 x 4% = $140)
Cash
Service charge expense
Sales

3,360
140
3,500

Notes Payable
Companies may grant credit in exchange
for a promissory note. A promissory note
is a written promise to pay a specified
amount of money on demand or at a
definite time.
Promissory notes may be used:
1. when individuals and companies lend

or borrow money,
2. when amount of transaction and credit

period exceed normal limits, or


3. in settlement of accounts receivable.

Notes
Notes Receivable
Receivable
To the Payee, the promissory note is a note
receivable.
To the Maker, the promissory note is a note
payable.

Determining the Maturity Date


Note expressed in terms of
Months
Days

Computing Interest

Nov. 1 Loaned $15,000 cash to Sally Givens on a


1-year, 10% note. Dec. 11 Sold goods to John
Countryman, Inc., receiving a $6,750, 90-day, 8%
note. Dec. 16 Received a $4,000, 6-month, 9%
note in exchange for Bob Rebers outstanding
accounts receivable.
Nov. 1

Notes receivable

15,000

Cash
Dec. 11

Notes receivable

15,000
6,750

Sales
Dec. 16

Notes receivable
Accounts receivable

6,750
4,000
4,000

Dec. 31 Accrued interest revenue on all notes receivable.

Dec. 31

Interest receivable
Interest revenue

295
295

On May 2, Kleinsorge Company lends $7,600 to


Everhart, Inc., issuing a 6-month, 9% note. At the
maturity date, November 2, Everhart indicates
that it cannot pay.
Instructions
(a) Prepare the entry to record the issuance of the
note.
(b) Prepare the entry to record the dishonor of the
note, assuming that Kleinsorge Company expects
collection will occur.
(c) Prepare the entry to record the dishonor of the
note, assuming that Kleinsorge Company does not
expect collection in the future.

(a) Prepare the entry to record the issuance of


the note. (b) Prepare the entry to record the
dishonor of the note, assuming that Kleinsorge
Company expects collection will occur.
(a)

Notes receivable

7,600

Cash
(b)

7,600

Interest = $7,600 x 9% x 6/12 = $342


Accounts receivable

7,942

Notes receivable

7,600

Interest revenue

342

Analysis of Receivables

This Ratio used to:

Assess the liquidity of the receivables.


Measure the number of times, on average, a
company collects receivables during the period.

Analysis of Receivables

Variant of the accounts receivable turnover ratio is average


collection period in terms of days.

Used to assess effectiveness of credit and collection


policies.
Collection period should not exceed credit term
period.