ACCT 1006 NOTES
Lecture 6 Receivables
1. Types of receivables
(1)Accounts receivable: the amounts owed to the firm by customers on account from the sale of goods or services
(2)Notes receivable: the amounts owing to the firm outside normal trade for which formal instruments of credit are issued evidencing the debt, and on which interest is generally payable
(3) Other receivables include non-trade receivables such as interest receivable, loans, advances and GST receivable.
2. Accounting for A/R
Accounts receivables are the most significant receivables for most firms. Thus, there are 3 accounting problem associated with A/R: recognizing A/R, valuing A/R, accelerating cash receipts from receivables.
! Amounts owed by customers are recognizes in
A/R control account (general ledger) & A/R subsidiary ledger—initially recognized when the sale occurs, at invoice amount (less sales R&A)
! Amounts owed by customers are reported on:
(1)The statement of financial position(current asset section)—but at what amount(value)? Some will not pay
(2)this involves choosing one of the 2 methods to account for these uncollectable accounts (bad debts)
Direct write-off method & Allowance method
3. Decision Flowchart
!
1. Direct write-‐off method (1) Assumes all receivables will be collected, a bad debt is recognized only when we know the debt will not be paid (evidence-‐based) (2) A/R is reported in the statement of Financial Position (balance sheet) at the gross amount.
(3) Direct write-‐off method use 2 accounts for recording A/R and Bed debts !
A/R: total amount owing to the business by its customers
!
BD expenses: total amount of debts written off during the period because they are not collectible.
1. Types of receivables
(1)Accounts receivable: the amounts owed to the firm by customers on account from the sale of goods or services
(2)Notes receivable: the amounts owing to the firm outside normal trade for which formal instruments of credit are issued evidencing the debt, and on which interest is generally payable
(3) Other receivables include non-trade receivables such as interest receivable, loans, advances and GST receivable.
2. Accounting for A/R
Accounts receivables are the most significant receivables for most firms. Thus, there are 3 accounting problem associated with A/R: recognizing A/R, valuing A/R, accelerating cash receipts from receivables.
! Amounts owed by customers are recognizes in
A/R control account (general ledger) & A/R subsidiary ledger—initially recognized when the sale occurs, at invoice amount (less sales R&A)
! Amounts owed by customers are reported on:
(1)The statement of financial position(current asset section)—but at what amount(value)? Some will not pay
(2)this involves choosing one of the 2 methods to account for these uncollectable accounts (bad debts)
Direct write-off method & Allowance method
3. Decision Flowchart
!
1. Direct write-‐off method (1) Assumes all receivables will be collected, a bad debt is recognized only when we know the debt will not be paid (evidence-‐based) (2) A/R is reported in the statement of Financial Position (balance sheet) at the gross amount.
(3) Direct write-‐off method use 2 accounts for recording A/R and Bed debts !
A/R: total amount owing to the business by its customers
!
BD expenses: total amount of debts written off during the period because they are not collectible.