Kế toán, kiểm toán - Chapter 8: Reporting and analyzing receivables

CHAPTER 8:REPORTING AND ANALYZING RECEIVABLESLO 1: Identify the types of receivables and record accounts receivable transactions.LO 2: Account for bad debts.LO 3: Account for notes receivable.LO 4: Explain the statement presentation of receivables.LO 5: Apply the principles of sound accounts receivable management.LEARNING OBJECTIVESAmounts due to a business from its customers or other entities expected to be collected in cashFrequently classified asAccounts receivable – amounts owed by customers due to the sale of goods and servicesNotes receivable – formal credit instrument (written promise to pay)Other receivables – interest receivable, loans and advances to employees, recoverable sales tax, income tax receivableTypes of ReceivablesA receivable is recorded when service is provided on account or at point of sale of merchandise on accountA receivable is reduced when cash is collected, a sales discount is taken, or the merchandise is returned by the customerAccounts ReceivableSubsidiary ledger is a group of accounts that share a common characteristic (i.e. they are all receivable accounts)The subsidiary ledger for accounts receivable provides the details that support the total balance for accounts receivable in the general ledgerThe single accounts receivable account in the general ledger is the control accountAccounts Receivable Subsidiary LedgerIf a customer does not pay in full within the credit term period (usually 30 days), an interest (financing) charge may be added to the balance dueSeller recognizes interest revenue and increases the account receivable balance owed by the customerInterest RevenueWhat kind of receivables would a hospital report on its statement of financial position?Discussion QuestionSome accounts receivable become uncollectibleLosses from these uncollectible accounts are debited to an account called Bad Debts ExpenseBad debts expense is recognized in the same period that the related sales revenue is generatedAccount for Bad DebtsThis method estimates the uncollectible accounts at the end of each periodThe amount estimated is shown in the Allowance for Doubtful Accounts A contra asset account that is shown below Accounts Receivable and netted with Accounts Receivable to determine carrying amount Note that the allowance is an estimate – it does not show specific customer accountsAllowance MethodMost companies use the percentage of receivables basis to determine the allowanceEstimate what percentage of receivables are likely to be uncollectibleApply this percentage to total receivables, orApply this percentage to receivables classified according to the length of time they have been outstanding (called aging of accounts receivable method)Estimating the AllowanceOnce the appropriate estimate for uncollectible accounts is determined, an adjusting entry can be recordedThe amount of the adjusting entry is the difference between the required balance and the existing balance in the allowance accountEstimating the Allowance(Continued)The balance in the Allowance for Doubtful Accounts is deducted from Accounts Receivable in the current assets section of the statement of financial position:Measuring and Recording EstimatedUncollectible AccountsThe vice president of finance authorizes a write-off of $2,500 owed by T. Ebbet: Recording the Write-Off of an Uncollectible AccountRecording the Recovery of an Uncollectible AccountRecord in two separate entries:Recording estimated uncollectible accountsAny increase to the allowance is recorded as bad debts expenseRecording the write-off of an uncollectible accountActual accounts are written off when they are determined to be uncollectibleThis write-off reduces the allowanceRecording the recovery of an uncollectible accountIf a written-off account is later collected, the write-off is reversed and the collection recordedSummary of theAllowance MethodWhy is it important that bad debt expense is recorded in the same period as the related revenue?Discussion QuestionStronger legal claim to assets than accounts receivable; written promise (promissory note) to repayA credit instrument that normallyRequires the payment of interest Extends for time periods greater than 30 daysOften accepted fromCustomers who need to extend payment of an account receivableHigh-risk customersAccount for Notes ReceivableThe basic formula for calculating interest on an interest-bearing note is The interest rate specified on the note is an annual rate of interestFormula for Calculating Interest Principal Amount of the NoteAnnual InterestRateTime in Terms of One YearInterestXX=Honoured (Collected)Paid in full at maturity dateCollection recordedDishonouredNot paid at maturity date; note no longer negotiableBalance transferred to Accounts Receivable if eventual collection expectedBalance written off to Bad Debts Expense if eventual collection not expectedDerecognizing Notes ReceivableWhat are the main differences and similarities between accounts receivable and notes receivable?Discussion QuestionStatement of Financial PositionReceivables reported in the current assets sectionFollowing cash and held for trading investmentsReported at carrying amount, but helpful to disclose gross receivables and the allowance for doubtful accountsIncome StatementBad debts expense is reported as an operating expenseInterest revenue is non-operatingStatement PresentationDetermine to whom to extend creditEstablish a payment periodMonitor collectionsPrepare and update an accounts receivable aging scheduleEvaluate the liquidity of receivablesManaging Accounts ReceivablesLiquidity is measured by how quickly certain assets can be converted into cashReceivables turnoverAverage collection periodEvaluating the Liquidity of ReceivablesIs a measure of the liquidity of receivablesReceivables TurnoverReceivables Turnover = Net Credit Sales Average Gross Accounts ReceivablesHigher is betterIs the average amount of time that a receivable is outstandingAverage Collection PeriodAverage Collection Period = 365 days Receivables TurnoverLower is betterWhat do the receivables turnover ratio and average collection period reveal?Discussion QuestionComparing IFRS and ASPECOPYRIGHTCopyright © 2017 John Wiley & Sons Canada, Ltd. 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