Kế toán tài chính 2 - Chapter 8: Cash and receivables

CHAPTER 8CASH AND RECEIVABLESINTERMEDIATE ACCOUNTINGPrinciples and Analysis 2nd EditionWarfield Weygandt Kieso Identify items considered as cash.Indicate how to report cash and related items.Define receivables and identify the different types of receivables.Explain accounting issues related to recognition of accounts receivable.Explain accounting issues related to valuation of accounts receivable.Explain accounting issues related to recognition of notes receivable.Explain accounting issues related to valuation of notes receivable.Explain accounting issues related to disposition of accounts and notes receivable.Describe how to report and analyze receivables.Learning ObjectivesWhat is cash?Management and control of cashReporting cashSummary of cash-related itemsCashReceivablesRecognition of accounts receivableValuation of accounts receivableRecognition of notes receivableValuation of notes receivableDisposition of accounts and notes receivablePresentation and analysisCash and ReceivablesMost liquid assetStandard medium of exchange Basis for measuring and accounting for all itemsCurrent assetExamples: Coin, currency, available funds on deposit, money orders, certified checks, cashier’s checks, personal checks, bank drafts, and savings accounts.What is Cash?LO 1 Identify items considered as cash.Cash(1) To establish proper controls to prevent any unauthorized transactions, and (2) To provide information necessary to the proper management of cash on hand and cash transactions.Management and Control of CashLO 1 Identify items considered as cash.Management faces two problems:Companies segregate restricted cash from “regular” cash for reporting purposes.Examples, restricted for:(1) Plant expansion, (2) Retirement of long-term debt, and (3) Compensating balances.Reporting CashLO 2 Indicate how to report cash and related items.Restricted CashIllustration 8-1When a company writes a check for more than the amount in its cash account.Reporting CashLO 2 Indicate how to report cash and related items.Bank OverdraftsGenerally reported as a current liability.Offset against cash account only when available cash is present in another account in the same bank on which the overdraft occurred.Short-term, highly liquid investments that are bothReporting CashLO 2 Indicate how to report cash and related items.Cash Equivalentsreadily convertible to cash, and so near their maturity that they present insignificant risk of changes in interest rates.Examples: Treasury bills, Commercial paper, and Money market funds.ReceivablesLO 3 Define receivables and identify the different types of receivables.Written promises to pay a sum of money on a specified future date.Claims held against customers and others for money, goods, or services.Oral promises of the purchaser to pay for goods and services sold.Accounts ReceivableNotes ReceivableExamples:Nontrade ReceivablesAdvances to officers and employees.Advances to subsidiaries.Deposits to cover potential damages or losses.Deposits as a guarantee of performance or payment.Dividends and interest receivable.ReceivablesLO 3 Define receivables and identify the different types of receivables.Recognition of Accounts ReceivablesLO 4 Explain accounting issues related to recognition of accounts receivable.Trade DiscountsReductions from the list priceNot recognized in the accounting recordsCustomers are billed net of discounts10% Discount for new Retail Store CustomersRecognition of Accounts ReceivablesLO 4 Explain accounting issues related to recognition of accounts receivable.Cash DiscountsInducements for prompt paymentGross method vs. Net methodPayment terms are 2/10, n/30Example: On June 3, Benedict Corp. sold to Chester Inc., merchandise having a sale price of $5,000 with terms of 2/10,n/60, f.o.b. shipping point. On June 12, Benedict received a check for the balance due from Chester. Prepare required journal entries assuming Benedict records the sale at gross.Sales 5,000Accounts Receivable 5,000June 3Recognition of Accounts ReceivablesLO 4 Explain accounting issues related to recognition of accounts receivable.Cash ($5,000 x 98%) 4,900June 12Gross MethodSales Discounts 100Accounts Receivable 5,000Example: On June 3, Benedict Corp. sold to Chester Inc., merchandise having a sale price of $5,000 with terms of 2/10,n/60, f.o.b. shipping point. On June 12, Benedict received a check for the balance due from Chester. Prepare required journal entries assuming Benedict records the sale at net.Sales 4,900Accounts Receivable 4,900June 3Recognition of Accounts ReceivablesLO 4 Explain accounting issues related to recognition of accounts receivable.Accounts Receivable 4,900Cash 4,900June 12Net MethodExample: On June 3, Benedict Corp. sold to Chester Inc., merchandise having a sale price of $5,000 with terms of 2/10,n/60, f.o.b. shipping point. On June 29, Benedict received a check for the balance due from Chester. Prepare required journal entries assuming Benedict records the sale at net.Sales 4,900Accounts Receivable 4,900June 3Recognition of Accounts ReceivablesLO 4 Explain accounting issues related to recognition of accounts receivable.Accounts Receivable 4,900Cash 5,000June 29Sales Discounts Forfeited 100Net MethodA company should measure receivables in terms of their present value.In practice, companies ignore interest revenue related to accounts receivable because the amount of the discount is not usually material.Nonrecognition of Interest ElementLO 4 Explain accounting issues related to recognition of accounts receivable.Recognition of Accounts ReceivablesHow are these accounts presented on the balance sheet?Accounts ReceivableAllowance for Doubtful AccountsBeg. 500 25 Beg. End. 500 25 End. Accounting for Accounts ReceivableLO 4 Explain accounting issues related to recognition of accounts receivable.AssetsCurrent assets: Cash $ 346 Accounts receivable 500 Less: Allowance for doubtful accounts 25 475 Inventory 812 Prepaids _ 40 Total current assets 1,673Fixed assets: Office equipment 5,679 Furniture & fixtures 6,600 Less: Accumulated depreciation (3,735) Total fixed assets 8,544 Total assets $10,217 LO 4 Explain accounting issues related to recognition of accounts receivable.AssetsCurrent assets: Cash $ 346 Accounts receivable, net of $25 allowance for doubtful accounts 475 Inventory 812 Prepaids _ 40 Total current assets 1,673Fixed assets: Office equipment 5,679 Furniture & fixtures 6,600 Less: Accumulated depreciation (3,735) Total fixed assets 8,544 Total assets $10,217 LO 4 Explain accounting issues related to recognition of accounts receivable.Journal entry for credit sale of $100? Accounts Receivable 100 Sales 100Accounts ReceivableAllowance for Doubtful AccountsBeg. 500 25 Beg. End. 500 25 End. Accounting for Accounts ReceivableLO 4 Explain accounting issues related to recognition of accounts receivable.Journal entry for credit sale of $100? Accounts Receivable 100 Sales 100Accounts ReceivableAllowance for Doubtful AccountsBeg. 500 25 Beg. End. 600 25 End. Sale 100Accounting for Accounts ReceivableLO 4 Explain accounting issues related to recognition of accounts receivable.Collected of $333 on account? Cash 333 Accounts Receivable 333Accounts ReceivableAllowance for Doubtful AccountsBeg. 500 25 Beg. End. 600 25 End. Sale 100Accounting for Accounts ReceivableLO 4 Explain accounting issues related to recognition of accounts receivable.Collected of $333 on account? Cash 333 Accounts Receivable 333Accounts ReceivableAllowance for Doubtful AccountsBeg. 500 25 Beg. End. 267 25 End. Sale 100333 Coll. Accounting for Accounts ReceivableLO 4 Explain accounting issues related to recognition of accounts receivable.Adjustment of $15 for estimated bad debts? Bad Debt Expense 15 Allowance for Doubtful Accounts 15Accounts ReceivableAllowance for Doubtful AccountsBeg. 500 25 Beg. End. 267 25 End. Sale 100333 Coll. Accounting for Accounts ReceivableLO 4 Explain accounting issues related to recognition of accounts receivable.Adjustment of $15 for estimated bad debts? Bad Debt Expense 15 Allowance for Doubtful Accounts 15Accounts ReceivableAllowance for Doubtful AccountsBeg. 500 25 Beg. End. 267 40 End. Sale 100333 Coll. 15 Est. Accounting for Accounts ReceivableLO 4 Explain accounting issues related to recognition of accounts receivable.Write-off of uncollectible accounts for $10? Allowance for Doubtful accounts 10 Accounts Receivable 10Accounts ReceivableAllowance for Doubtful AccountsBeg. 500 25 Beg. End. 267 40 End. Sale 100333 Coll. 15 Est. Accounting for Accounts ReceivableLO 4 Explain accounting issues related to recognition of accounts receivable.Write-off of uncollectible accounts for $10? Allowance for Doubtful accounts 10 Accounts Receivable 10Accounts ReceivableAllowance for Doubtful AccountsBeg. 500 25 Beg. End. 257 30 End. Sale 100333 Coll. 15 Est. W/O 10 10 W/O Accounting for Accounts ReceivableLO 4 Explain accounting issues related to recognition of accounts receivable.AssetsCurrent assets: Cash $ 346 Accounts receivable, net of $30 allowance for doubtful accounts 227 Inventory 812 Prepaids _ 40 Total current assets 1,673Fixed assets: Office equipment 5,679 Furniture & fixtures 6,600 Less: Accumulated depreciation (3,735) Total fixed assets 8,544 Total assets $10,217 LO 4 Explain accounting issues related to recognition of accounts receivable.Valuation of Accounts ReceivableLO 5 Explain accounting issues related to valuation of accounts receivable.Reporting ReceivablesClassificationValuation (net realizable value)Uncollectible Accounts ReceivableSales on account raise the possibility of accounts not being collected Uncollectible Accounts ReceivableLO 5 Explain accounting issues related to valuation of accounts receivable.Allowance MethodLosses are Estimated:Percentage-of-salesPercentage-of-receivablesMethods of Accounting for Uncollectible AccountsDirect Write-OffTheoretically undesirable:No matchingReceivable not stated at net realizable valueIncome Statement ApproachBalance Sheet ApproachPercentage of SalesMatchingSales --- Bad Debt ExpensePercentage of ReceivablesNet Realizable ValueReceivables - Allowance for Bad DebtUncollectible Accounts ReceivableLO 5 Explain accounting issues related to valuation of accounts receivable.Example DataCredit sales $500,000Estimated % of credit sales not collected 1.25% Accounts receivable balance $72,500Estimated % of A/R not collected 8%Allowance for Doubtful Accounts: Case I $150 (credit balance) Case 2 $150 (debit balance)Uncollectible Accounts ReceivableLO 5 Explain accounting issues related to valuation of accounts receivable.Charge sales $500,000Estimated percentage x 1.25%Estimated expense $ 6,250===================================================What should the ending balance be for the allowance account? -- Case 1 and Case 2Uncollectible Accounts ReceivablePercentage of Sales MethodLO 5 Explain accounting issues related to valuation of accounts receivable.Uncollectible Accounts ReceivableActual balance (credit) (150)150Adjustment(6,250)(6,250)Ending balance(6,400)(6,100)Journal entry:Allowance for Doubtful Accounts 6,250Bad Debt Expense 6,250Case 1Case 2Percentage of SalesLO 5 Explain accounting issues related to valuation of accounts receivable.Uncollectible Accounts ReceivableAccounts receivable $ 72,500Estimated percentage x 8%Desired balance $ 5,800===================================================What should the ending balance be for the allowance account? -- Case 1 and Case 2Percentage of ReceivablesLO 5 Explain accounting issues related to valuation of accounts receivable.Uncollectible Accounts ReceivableActual balance (credit)(150)150Desired balance(5,800)(5,800)Adjustment(5,650)(5,950)Journal entry – Case 1:Allowance for Doubtful Accounts 5,650Bad Debt Expense 5,650Case 1Case 2Percentage of ReceivablesLO 5 Explain accounting issues related to valuation of accounts receivable.Uncollectible Accounts ReceivableActual balance (credit)(150)150Desired balance(5,800)(5,800)Adjustment(5,650)(5,950)Journal entry – Case 2:Allowance for Doubtful Accounts 5,950Bad Debt Expense 5,950Case 1Case 2Percentage of ReceivablesLO 5 Explain accounting issues related to valuation of accounts receivable.Percentage of Sales approach:SummaryBad debt expense estimate is related to a nominal account (Sales), balance in allowance account is ignored. Achieves a proper matching of cost and revenues.Uncollectible Accounts ReceivablePercentage of Receivables approach:Results in a more accurate valuation of receivables on the balance sheet. Method may also be applied using an aging schedule. LO 5 Explain accounting issues related to valuation of accounts receivable.Supported by a formal promissory note.Recognition of Notes ReceivableLO 6 Explain accounting issues related to recognition of notes receivable.Notes ReceivableA negotiable instrumentMaker signs in favor of a payeeInterest-bearing (has a stated rate of interest) ORNoninterest-bearing (interest included in face amount)Recognition of Notes ReceivableLO 6 Explain accounting issues related to recognition of notes receivable.Generally originate from:Customers who need to extend the payment period of an outstanding receivable High-risk or new customersLoans to employees and subsidiariesSales of property, plant, and equipmentLending transactions (the majority of notes)LO 6 Explain accounting issues related to recognition of notes receivable.Recognition of Notes ReceivableShort-TermLong-TermRecord at Face Value,less allowanceRecord at Present Valueof cash expected to be collectedInterest RatesStated rate = Market rateStated rate > Market rateStated rate < Market rate Note Issued atFace valuePremiumDiscount Exercise: Balance Bar Co. lends Bio Foods $100,000 in exchange for a $100,000, 5-year note bearing interest at 8 percent annually. The market rate of interest for a note of similar risk is also 8 percent. How does Balance Bar record the receipt of the note? Note Issued at Face ValueLO 6 Explain accounting issues related to recognition of notes receivable.01234568,0008,0008,000$8,0008,000$100,000 PV of an Ordinary Annuity$8,000 x 3.99271 = $31,942InterestFactorPresent ValuePV of InterestNote Issued at Face ValueLO 6 Explain accounting issues related to recognition of notes receivable. $100,000 x .68058 = $68,058PrincipalFactorPresent ValuePV of PrincipalNote Issued at Face ValueLO 6 Explain accounting issues related to recognition of notes receivable.PV of a Single SumSummaryPresent value of interest $ 31,942Present value of principal 68,058 Bond current market value $100,000 Note Issued at Face ValueLO 6 Explain accounting issues related to recognition of notes receivable.Exercise: Balance Bar Co. receives a 5-year, $100,000 zero-interest-bearing note. The market rate of interest for a note of similar risk is 6 percent. How does Balance Bar record the receipt of the note? Zero-Interest-Bearing NoteLO 6 Explain accounting issues related to recognition of notes receivable.0123456000$00$100,000Present value of principle: $100,000 (PVF 5, 6%) = $100,000 x .74726 = $74,726Amortization ScheduleNon-Interest-Bearing NoteLO 6 Explain accounting issues related to recognition of notes receivable.Zero-Interest-Bearing NoteJournal Entries for Non-Interest-Bearing notePresent value of principal $74,726 LO 6 Explain accounting issues related to recognition of notes receivable.Zero-Interest-Bearing NoteExercise: Balance Bar Co. made a loan to Bio Foods and received in exchange a 5-year, $100,000 note bearing interest 8 percent. The market rate of interest for a note of similar risk is 10 percent. How does Balance Bar record the receipt of the note? Interest-Bearing NoteLO 6 Explain accounting issues related to recognition of notes receivable.Present value of principle: $100,000 (PVF 5, 10%) = $100,000 x .62092 = $ 62,092Present value of interest: $8,000 (PVF 5, 10%) = $8,000 x 3.79079 = 30,326Present value of note $ 92,418Amortization ScheduleInterest-Bearing NoteLO 6 Explain accounting issues related to recognition of notes receivable.Interest-Bearing NoteJournal Entries for Interest-Bearing NoteLO 6 Explain accounting issues related to recognition of notes receivable.Interest-Bearing NoteValuation of Notes ReceivableLO 7 Explain accounting issues related to valuation of notes receivable.Short-Term reported at Net Realizable Value (same as accounting for accounts receivable).Long-Term Companies have option to use fair value. Receivables recorded at fair value.Unrealized gains or losses reported as part of net income. Impaired when it is probable that creditor will be unable to collect all amounts due (both principal and interest). Receivable should be written off and a loss recorded.Disposition of Accounts and Notes ReceivableLO 8 Explain accounting issues related to disposition of accounts and notes receivable.Owner may transfer accounts or notes receivables to another company for cash.Reasons:Competition.Sell receivables because money is tight.Billing / collection are time-consuming and costly.Transfer accomplished by:Secured borrowingSale of receivablesExercise: On April 1, 2008, Rasheed Company assigns $400,000 of its accounts receivable to the Third National Bank as collateral for a $200,000 loan due July 1, 2008. The assignment agreement calls for Rasheed Company to continue to collect the receivables. Third National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type).Secured Borrowing - ExerciseLO 8 Explain accounting issues related to disposition of accounts and notes receivable.Instructions(a) Prepare the April 1, 2008, journal entry for Rasheed Company.(b) Prepare the journal entry for Rasheed’s collection of $350,000 of the accounts receivable during the period from April 1, 2008, through June 30, 2008.(c) On July 1, 2008, Rasheed paid Third National all that was due from the loan it secured on April 1, 2005.Exercise: continuedLO 8 Explain accounting issues related to disposition of accounts and notes receivable.Secured Borrowing - ExerciseFactors are finance companies or banks that buy receivables from businesses for a fee.LO 8 Explain accounting issues related to disposition of accounts and notes receivable.Sales of ReceivablesIllustration 8-16Sale Without RecoursePurchaser assumes risk of collection Transfer is outright sale of receivableSeller records loss on saleSeller use Due from Factor (receivable) account to cover discounts, returns, and allowancesLO 8 Explain accounting issues related to disposition of accounts and notes receivable.Sales of ReceivablesSale With RecourseSeller guarantees payment to purchaser Financial components approach used to record transferThe FASB concluded that a sale occurs only if the seller surrenders control of the receivables to the buyer. Three conditions must be met:LO 8 Explain accounting issues related to disposition of accounts and notes receivable.Secured Borrowing versus SaleIllustration 8-21General rule in classifying receivables are:Segregate the different types of receivables that a company possesses, if material.Appropriately offset the valuation accounts against the proper receivable accounts.Determine that receivables classified in the current assets section will be converted into cash within the year or the operating cycle, whichever is longer.Disclose any loss contingencies that exist on the receivables.Disclose any receivables designated or pledged as collateral.Disclose all significant concentrations of credit risk arising from receivables.Presentation and AnalysisLO 9 Describe how to report and analyze receivables.Analysis of ReceivablesPresentation and AnalysisLO 9 Describe how to report and analyze 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.Copyright © 2008 John Wiley & Sons, Inc. 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