war22ech09 receivables revisi

(1)

Click to edit Master title style

1

Adeng Pustikaningsih, M.Si.

Dosen Jurusan Pendidikan Akuntansi Fakultas Ekonomi

Universitas Negeri Yogyakarta

CP: 08 222 180 1695

(2)

Click to edit Master title style

Receivables

(3)

Click to edit Master title style

3

1.

Describe the common classifications

of receivables.

2.

Describe the nature of and the

accounting for uncollectible

receivables.

3.

Describe the direct write-off method

of accounting for uncollectible

receivables.

(4)

4.

Describe the allowance method of

accounting for uncollectible

receivables.

5.

Compare the direct write-off and

allowance methods of accounting for

uncollectible accounts.

(5)

5

6.

Describe the nature, characteristics,

and accounting for notes receivables.

7.

Describe the reporting of receivables

on the balance sheet.

(6)

Describe the

common

classifications of

receivables.

Objective 1

(7)

7

The term

receivables

includes

all money claims against other

entities, including people,

business firms, and other

organizations.

(8)

Accounts receivable

are

normally expected to be

collected within a

relatively short period,

such as 30 or 60 days.

(9)

9

Notes receivable

are

amounts that customers

owe for which a formal,

written instrument of

credit has been issued.

(10)

Other receivables

expected to be

collected within one year are

classified as current assets. If

collection is expected beyond one

year, these receivables are classified

as noncurrent assets and reported

under the caption

Investments

.

(11)

11

Describe the nature of

and the accounting for

uncollectible

receivables.

Objective 2

(12)

Companies often sell their

receivables to other companies.

This transaction is called

factoring

the receivables, and the buyer of the

receivables is called a

factor

.

(13)

13

There are two methods of

accounting for receivables that

appear to be uncollectible: the

direct write off

method

and the

allowance method

.

(14)

Click to edit Master title style

The

direct write off

method

records

bad debt expense only when an

account is judged to be worthless.

The

allowance method

records bad

debt expense by estimating

uncollectible accounts at the end of

the accounting period.

(15)

15

Describe the direct

write-off method of accounting

for uncollectible

receivables.

Objective 3

(16)

May 10 Bad Debt Expense 4 200 000

Accounts Receivable—D. L. Ross 4 200 000

On May 10, a Rp4,200,000 accounts

receivable from D. L. Rosana has

been determined to be uncollectible.

(17)

17 16

The amount written off is later

collected on November 21.

Nov. 21 Accounts Receivable—D. L. Rosana 4 200 000

Bad Debt Expense 4 200 000

21 Cash 4 200 000

Accounts Receivable—D. L. Rosana 4 200 000

(18)

Example Exercise 9-1

Journalize the following transactions using the

direct write-off method of accounting for

uncollectible receivables.

July 9 Received Rp1,200,000 from Jaya Basuki

and wrote off the remainder owed

of Rp3,900,000 as uncollectible.

(19)

19

Follow My Example 9-1

18

For Practice: PE 9-1A, PE 9-1B

July 9 Cash 1,200,000

Bad Debt Expense 3,900,000

Accounts Receivable

—

Jaya Basuki

5,100,000

Oct. 11 Accounts Receivable

—

Jaya Basuki 3,900,000

Bad Debt Expense

3,900,000

11 Cash 3,900,000

(20)

Describe the allowance

method of accounting for

uncollectible receivables.

Objective 4

(21)

21 20

On December 31, IndoToner Company estimates that

a total of Rp40,000,000 of the Rp1,000,000,000

balance in her company’s

Accounts Receivable

will

eventually be uncollectible.

Dec. 31 Bad Debt Expense 40 000 000

Allowance for Doubtful Accounts 40 000 000 Uncollectible accounts

estimate.

(22)

The net amount that is expected to be

collected, Rp960,000,000

(Rp1,000,000,000

–

Rp40,000,000), is

called the

net realizable value (NRV)

.

The adjusting entry reduces receivables to

the NRV and matches uncollectible

expenses with revenues.

(23)

23 22 Jan. 21 Allowance for Doubtful Accounts 6 000 000

Accounts Receivable— Johan Pariang 6 000 000

To write off the uncollectible account.

9-4

On January 21, Johan Pariang’s account totaling

(24)

(25)

25

During 2008, IndoToner Company

writes off Rp36,750,000 of uncollectible

accounts, including the Rp6,000,000

account of Johan Pariang. After posting

all entries to write-off uncollectible

amounts, the

Allowance for Doubtful

Accounts

will have a credit balance of

Rp3,250,000 (Rp40,000,000

–

Rp36,750,000).

(26)

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Jan. 1, 2008 Bal. 40,000,000 Jan. 21 6,000,000

Feb. 2 3,900,000

{

Total accounts written off Rp36,750,000

Dec. 31 Unadjusted bal 3,250,000 ― ―

― ―

(27)

27

If IndoToner Company had

written off Rp44,100,000 in

accounts receivable during

2008, the

Allowance for

Doubtful Accounts

would have

a debit balance of Rp4,100,000.

(28)

Click to edit Master title style

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Jan. 1, 2008 Bal. 40,000,000 Jan. 21 6,000,000

Feb. 2 3,900,000

{

Dec. 31 Unadjusted bal 4,100,000 ― ― ― ―

(29)

29

Nani Siregar account of Rp5,000,000 which

was written off on April 2 is later collected on

June 10. Two entries are needed: one to

reinstate Nani Siregar account and a second to

record receipt of the cash.

(30)

June 10 Accounts Receivable—Nani Siregar 5 000 000

To reinstate the account written off on Jan. 21.

Allowance for Doubtful Accounts 5 000 000

Entry 1: Reinstate the account.

(31)

31 30 June 10 Cash 5 000 000

Collection of written-off account.

Accounts Receivable—Nani Siregar 5 000 000

Entry 2: Record collection of cash.

(32)

Journalize the following transactions using the

allowance method of accounting for

uncollectible receivables.

July 9 Received Rp1,200,000 from Jaya Basuki

and wrote off the remainder owed

of Rp3,900,00 as uncollectible.

(33)

33

Follow My Example 9-2

32

July 9 Cash 1,200,000

Allowance for Doubtful Accounts 3,900,000

Accounts Receivable

—

Jaya Basuki

5,100,000

Oct. 11 Accounts Receivable

—

Jaya Basuki 3,900,000

Allowance for Doubtful Accounts

3,900,000

11 Cash 3,900,000

(34)

1. Estimate based on a percentage

of sales.

2. Estimate based on analysis of

receivables.

The allowance method uses two ways

to estimate the amount debited to

Bad

Debt Expense

.

(35)

35

9-4

Estimate Based on a Percentage

of Sales

If credit sales for the period are

Rp3,000,000,000 and it is estimated that

1½ % will be uncollectible, the

Bad Debt

Expense

is debited for Rp45,000,000

(Rp3,000,000,000 x .015). This

(36)

After this adjusting entry is posted,

will

have a balance of Rp48,250,000.

Dec. 31 Bad Debt Expense 45 000 000

(Rp3,000,000,000 x 0.015 = Rp45,000,000).

(37)

Click to edit Master title style

37 36

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Jan. 1, 2008 Bal. 40,000,000 Jan. 21 6,000,000

Feb. 2 3,900,000

{

Dec. 31 Unadjusted bal 3,250,000 Dec. 31 Adj. entry 45,000,000 Dec. 31 Adjusted bal. 48,250,000 ―

―

9-4

BAD DEBT EXPENSE

(38)

At the end of the current year, Accounts Receivable has a

balance of Rp800,000,000; Allowance for Doubtful

Accounts has a credit balance of Rp7,500,000; and net

sales for the year total Rp3,500,000,000. Bad debt

expense is estimated at ½ of 1% of net sales.

Determine (a) the amount of the adjusting entry for

uncollectible accounts; (b) the adjusted balances of

Accounts Receivable, Allowance for Doubtful

(39)

Click to edit Master title style

39

38

(a) Rp17,500,000 (Rp3,500,000,000 x .005)

Adjusted Balance

(b) Accounts Receivable Rp800,000,000

(Rp7,500,000 + Rp17,500,000) 25,000,000

(40)

The longer an account receivable is

outstanding, the less likely that it will be

collected. Basing the estimate of

uncollectible accounts on how long specific

amounts have been outstanding is called

aging the receivables

.

9-4

Estimating Uncollectibles Based

(41)

41

A B C D E F G H I

Not

Past Over

Customer Balance Due 1-30 31-60 61-90 91-180 181-365 365

1 Aslan Rp 150,000 Rp150,000 1

2 B.T.Barus 610,000 Rp350,000 Rp260,000 2

3 Bambang 470,000 Rp470,000 3

21 21

22 Subang Jati 160,000 160,000 22

23 Total Rp86,300,000 Rp75,000,000 Rp4,000,000 Rp3,100,000 Rp1,900,000 Rp1,200,000 Rp800,00 Rp300,000 23

Days Past Due

Aging of Accounts

Receivables

(42)

A B C D

Age Interval Balance Percent Amount

1 Not past due Rp75,000,000 2% Rp1,500,000 2 1-30 days past due 4,000,000 5 200,000 3 31-60 days past due 3,100,000 10 310,000 4 61-90 days past due 1,900,000 20 380,000 5 91-180 days past due 1,200,000 30 360,000 6 181-365 days past due 800,000 50 400,000 7 Over 365 days past due 300,000 80 240,000 8 Total Rp86,300,000 Rp3,390,000

Estimated

Uncollectible Accounts

Estimate of

Uncollectible Accounts

(43)

43

9-4

Collection Rates by Number of

Months Past Due

(44)

9-4

Estimate Based on Analysis of

Receivables

If it is estimated that Rp3,390,000 of

the receivables will be uncollectible

and the

Allowance for

Uncollectible

Accounts

currently has a balance of

Rp510,000, the

Bad Debt

Expense

(45)

45 44

9-4

Estimate Based on Analysis of

Receivables

Aug. 31 Bad Debt Expense 2 880 000

(46)

9-4

BAD DEBT EXPENSE

Aug. 31 Adj. entry 2,880,000 Aug. 31 Adj. bal. 2,880,000

ALLOWANCE FOR DOUBTFUL ACCOUNTS

(47)

Click to edit Master title style

47

If the unadjusted balance of

Allowance for

Uncollectible

Account

s

had been a debit

balance of Rp300,000, the amount of the

adjustment would have been Rp3,690,000

(Rp3,390,000 + Rp300,000).

(48)

9-4

BAD DEBT EXPENSE

Aug. 31 Adj. entry 3,690,000 Aug. 31 Adj. bal. 3,690,000

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Aug. 31 Adj. entry 3,690,000 Aug. 31 Adj. bal. 3,390,000

(49)

Click to edit Master title style

49

At the end of the current year, Accounts Receivable has a

balance of Rp800,000,000; Allowance for Doubtful

Accounts has a credit balance of Rp7,500,000; and net

sales for the year total Rp3,500,000,000. Using the aging

method, the balance of Allowance for Doubtful Accounts

is estimated as Rp30,000,000.

Determine (a) the amount of the adjusting entry for

uncollectible accounts; (b) the adjusted balances of

Accounts Receivable, Allowance for Doubtful Accounts,

and Bad Debt Expense, and (c) the net realizable value of

(50)

(a) Rp22,500,000 (Rp30,000,000

–

Rp7,500,000)

Adjusted Balance

(b) Accounts Receivable Rp800,000,000

Allowance for Doubtful Accounts 30,000,000

(51)

51

Compare the direct

write-off and allowance methods

of accounting for

uncollectible accounts

Objective 5

(52)

Mar.1 Bad Debt Expense 3,650,000 Allowance for Doubtfull Accounts 3,650,000

Accounts Receivable - C.Yanuar 3,650,000 Accounts Receivable - C.Yanuar 3,650,000

Apr.12 Cash 2,250,000 Cash 2,250,000

Bad Debt Expense 3,250,000 Allowance for Doubtfull Accounts 3,250,000

Accounts Receivable - Karina Budiman 5,500,000 Accounts Receivable - Karina Budiman 5,500,000 June.22 Accounts Receivable - C.Yanuar 3,650,000 Accounts Receivable - C.Yanuar 3,650,000

Bad Debt Expense 3,650,000 Allowance for Doubtfull Accounts 3,650,000

22 Cash 3,650,000 Cash 3,650,000

Accounts Receivable - C.Yanuar 3,650,000 Accounts Receivable - C.Yanuar 3,650,000 Sept.22 Bad Debt Expense 6,445,000 Allowance for Doubtfull Accounts 6,445,000

Accounts Receivable - Jason Bimasakti 1,100,000 Accounts Receivable - Jason Bimasakti 1,100,000 Accounts Receivable - Santoso Budiman 2,220,000 Accounts Receivable - Santoso Budiman 2,220,000 Accounts Receivable - Sari Nuriah 775,000 Accounts Receivable - Sari Nuriah 775,000 Accounts Receivable - Sandy Nurmila 1,360,000 Accounts Receivable - Sandy Nurmila 1,360,000 Accounts Receivable - Amir Wicaksana 990,000 Accounts Receivable - Amir Wicaksana 990,000

Dec.31 No Entry Bad Debt Expense 42,500,000

Allowance for Doubtful Accounts 42,500,000

Comparing Direct-Write-Off

and Allowance Methods

9-5

(53)

53

Comparing the Direct Write-Off and

Allowance Methods

Direct Write-Off Method

9-5

When the actual accounts

receivable are determined

to be uncollectible

No allowance account is

used

Amount of bad debt

expense recorded

Allowance account

Primary users

Small companies and

companies with relatively

few receivables

(54)

Comparing the Direct Write-Off and

Allowance Methods

Allowance Method

9-5

Using estimate based on

either (1) a percentage of

sales or (2) analysis of

receivables.

The allowance account is

used

Amount of bad debt

expense recorded

Allowance account

Primary users

Large companies and those

(55)

55

Describe the nature,

characteristics, and

accounting for notes

receivable.

Objective 6

(56)

•

a specific amount of money (face

amount)

•

on demand or at a definite time

•

to an individual or a business (

payee

),

or to the bearer or holder of the note.

A note receivable, or promissory note, is

a written document containing a promise

to pay:

(57)

57

The one making the promise is

called the

maker

. The date a

note is to be paid is called the

due date

or

maturity date

.

(58)

$_____________

Fresno, California______________20___ March 16 08

________________ _AFTER DATE _______ PROMISE TO PAY TO Ninety days _We THE ORDER OF ____________________________________________ Judson Company

_________________________________________________DOLLARS

Two thousand five hundred 00/100---

PAYABLE AT ______________________________________________ City National Bank VALUE RECEIVED WITH INTEREST AT ____ 10%

2,500.00

NO. _______ DUE___________________ 14 June 14, 2008

TREASURER, WILLIARD COMPANY

H. B. Lane

Maker

9-6

(59)

59 58

Total days in note 90 days

Number of days in March 31 Issue date of note March 16

Remaining days in March –15 days 75 days Number of days in April –30 days 45 days Number of days in May –31 days Residual days in June 14 days

Answer: June 14

9-6

(60)

Received a Rp6,000,000, 12%, 30-day note

dated November 21, 2008 in settlement of

the account of W. A Barito Co.

Accounting for Notes Receivable

9-6

Nov. 21 Notes Rec.

—

W. A. Barito Co. 6 000 000

Accts. Rec.

—

W. A Barito Co.

6 000 000

(61)

61 60

On December 21, when the note matures, the firm

receives Rp6,060,000 from W. A. Barito Company

(Rp6,000,000 plus Rp60,000 interest).

Dec. 21 Cash

6 060 000

Notes Rec.

—

W. A. Barito Co.

6 000 000

Interest Revenue*

60 000

Received principal and

interest on matured note.

9-6

(62)

If W. A. Bunn Company fails to pay the note on

the due date, it is considered a

dishonored

note

receivable

. The note and interest are

transferred to the customer’s account.

9-6

Dec. 21 Accts Rec.

—

W. A. Barito Co.

6 060 000

Notes Rec.

—

W. A. Barito Co.

6 000 000

Interest Revenue

60 000

Recorded dishonored

(63)

63 62

A 90-day, 12% note dated December 1, 2008, is

received from PT Cemara to settle its account, which

has a balance of Rp4,000,000.

9-6

Dec. 1 Notes Rec.

—

PT Cemara

4 000 000

Accts. Rec.

—

PT Cemara

4 000 000

Accepted note in

settlement of account.

(64)

9-6

Dec. 31 Interest Receivable

40 000

Interest Revenue

40 000

Accrued interest

(Rp4,000,000 x 12% x

30/360).

2008

(65)

65 64

9-6

Mar. 1 Cash

4 120 000

Notes Rec.

—

PT Cemara

4 000 000

2009

On March 1, 2009, Rp4,120,000 is received for the

note (Rp4,000,000) and interest (Rp120,000).

Interest Receivable

40 000

Interest Revenue

80 000

(Rp4,000,000 x 12% x

30/360).

(66)

RS Palmerah Indah received a 120-day, 6% note for

Rp40,000,000, dated March 14 from a patient on

account.

a. Determine the due date of the note.

b. Determine the maturity value of the note.

c. Journalize the entry to record the receipt

(67)

67

66

b. Rp40,800,000 [Rp40,000,000 + (Rp40,000,000 x 6% x 120/360)]

c. Cash

40,800,000

Notes Receivable

40,000,000

Interest Revenue

800,000

a. July 12 determined as follows:

March 17 days (31 – 14) April 30 days

(68)

Describe the reporting

of receivables on the

balance sheet.

Objective 7

(69)

69 ₆₈

Assets

Current assets:

Cash Rp119,500,000 Notes receivable 250,000,000 Accounts receivable Rp445,000,000

Less allowance for

doubtful accounts 15,000,000 430,000,000 Interest receivable 14,500,000 Merchandise inventory 714,000,000

Indotronics Co. Balance Sheet December 31, 2008

9-7

Receivables on Balance Sheet

(70)

9-7

Accounts Receivable Turnover

The

accounts receivable turnover

measures

how frequently during the year the accounts

receivable are being converted to cash.

Accounts Receivable

Turnover

Net sales

Average accounts receivable

(71)

Click to edit Master title style

71 70

9-7

Federal Express Corporation

Accounts Receivable

Turnover (2004)

Rp17,383,000 Rp2,337,000

=

Accounts Receivable

Turnover (2004)

=

7.4

* _{[(Rp2,475,000 +}

Rp2,199,00)/2]

2005 2004 2003

Net sales Rp19,364,000 Rp17,383,000 ---

Accounts receivable 2,703,000 2,475,000 Rp2,199,000 Average accounts

receivable 2,589,000 2,337,000 _*

(72)

Click to edit Master title style

9-7

Accounts Receivable

Turnover (2005)

Rp19,364,000 Rp2,589,000

=

Accounts Receivable

=

7.5

2005

2004 2003

Net sales Rp19,364,000 Rp17,383,000 ---

Accounts receivable 2,703,000 2,475,000 Rp2,199,000 Average accounts receivable 2,589,000 2,337,000

*

(73)

Click to edit Master title style

73

Use: To assess the efficiency in

collecting receivables and in

the management of credit.

9-7

Number of Days’ Sales in Receivables

Average Accounts receivable

Average daily sales

Number of Days’

Sales in Receivables

=

(74)

74 73

9-7

Number of Days’ Sales in

Receivables (

2004

)

Rp2,337,000

47.6

=

Number of Days’ Sales

=

49.1

2005 2004 2003

Net sales Rp19,364,000 Rp17,383,000

Accounts receivable 2,703,000 2,475,000 Rp2,199,000 Average accounts receivable 2,589,000 2,337,000

Average daily sales 53.1 47.6

* _{[(Rp2,475,000 +}

(75)

Click to edit Master title style

75 74

9-7

Number of Days’ Sales in

Receivables (

2005

)

Rp2,589,000

53.1

=

Number of Days’ Sales

in Receivables (

2005

)

=

48.8

* _{[(Rp2,703,000+}

Rp2,475,000)/2]

* ** _{(Rp19,364,000/365)}

2005 2004 2003

Net sales Rp19,364,000 Rp17,383,000 --- Accounts receivable 2,703,000 2,475,000 Rp2,199,000 Average accounts receivable 2,589,000 2,337,000

Average daily sales 53.1 47.6

*

**