1. ACCOUNTING FOR RECEIVABLES Lecture 5

2. Receivables Receivables Current receivables Noncurrent receivables Receivable- claims expected to be collected in cash from customers and others for service or goods sold on account. For reporting purpose

3. Receivables Trade receivables Nontrade receivables Account receivable Notes receivable Other receivables

7. Recognition

8. RECOGNIZING ACCOUNTS RECEIVABLE Discounts Trade discounts Cash discounts

9. RECOGNIZING ACCOUNTS RECEIVABLE Trade discounts- percentage reduction from the list price Cash discounts – reductions not in the selling price of good or service, but in the amount to be paid by a credit customer if paid within a specified period of time. It is discount intended to provide incentive for quick payment

10. RECOGNIZING ACCOUNTS RECEIVABLE The amount of the discount and time period within which it’s available usually are conveyed by cryptic terms like 2/10, n/30 This terms meaning a 2% discount if paid within 10 days, otherwise full payment within 30 days.

11. RECOGNIZING ACCOUNTS RECEIVABLE Æèøýý íü : 5 ñàðûí 15-íä 2/10, n/20 ãýñýí íºõöºëòýéãýýð 200000 ₮ -èéí ¿íýòýé áàðààã áîðëóóëñàí. Õóäàëäàí àâàã÷ 5.22-íä 120000 ₮ , 5.27-íä ¿ëäýãäýë òºëáºðèéã òóñ òóñ ã¿éöýòãýâ. Two ways to record cash discounts Gross method Net method

12. GROSS METHOD 5/15 Dt Accounts receivable 200,000 Ct Sales revenue 200,000 5/22 Dt Cash 117,600 Dt Sales discount 2,400 Ct Accounts receivable 120,000 5/27 Dt Cash 80,000 Ct Accounts receivable 80,000

13. NET METHOD 5/15 Dt Accounts receivable 200,000 Ct Sales revenue 200,000 5/22 Dt Cash 117,600 Ct Accounts receivable 117,600 5/27 Dt Cash 80,000 Ct Accounts receivable 78,400 Ct Loss of sales discount 1,600

14. RECOGNIZING ACCOUNTS RECEIVABLE Loss of sales discount Income statement: Other income

15. TRADE DISCOUNTS Жишээ нь: “А” компани зээлээр борлуулалт хийсэн. Жагсаалтын үнэ 1500,000₮ Худалдааны хөнгөлөлт 10- 5- 2 Dt Accounts receivable 1256,850 Ct Sales revenue 1256,850

18. Direct Write-Off Method 1

21. Allowance Method Method 2

24. Estimate the amount of uncollectible accounts. Then Credit the Allowance account Matching And Debit the Expense Account Based on: Sales Accts Rec xxx xxx or Allowance for Doubtful Accounts xxx Bad Debts Expense xxx

25. Percent of Sales Method Method 1

28. Allowance Method $400,000 X 0.06% = $2,400 MusicLand computes estimated Bad Debts Expense of $2,400

29. Percent of Accounts Receivable Method Method 2

33. Desired balance in Allowance for Doubtful Accounts. % of Accounts Receivable $50,000 X 0.05% = $2,500

35. AGING OF ACCOUNTS RECEIVABLE

36. AGING OF ACCOUNTS RECEIVABLE MusicLand’s unadjusted balance in the allowance account is $200. Per the previous computation, the desired balance is $2,330.

37. Disposition

40. Exh. 7.13 % of Sales Emphasis on Matching Sales Bad Debts Exp. Income Statement Focus % of Receivables Emphasis on Realizable Value Accts. Rec. All. for Doubtful Accts. Balance Sheet Focus Aging of Receivables Emphasis on Realizable Value Accts. Rec. All. for Doubtful Accts. Balance Sheet Focus

41. ACCOUNTING IS FUN!