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Lecture Financial accounting: Tools for business decision-making (7th edition) – Chapter 8

Chapter 8 - Reporting and analyzing receivables. This chapter include objectives: Identify the types of receivables and record accounts receivable transactions, account for bad debts, account for notes receivable, explain the statement presentation of receivables, apply the principles of sound accounts receivable management. | CHAPTER 8: REPORTING AND ANALYZING RECEIVABLES LO 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 OBJECTIVES Amounts due to a business from its customers or other entities expected to be collected in cash Frequently classified as Accounts receivable – amounts owed by customers due to the sale of goods and services Notes receivable – formal credit instrument (written promise to pay) Other receivables – interest receivable, loans and advances to employees, recoverable sales tax, income tax receivable Types of Receivables A receivable is recorded when service is provided on account or at point of sale of merchandise on account A receivable is reduced when cash is collected, a sales discount is taken, or the merchandise is returned by the customer Accounts . | CHAPTER 8: REPORTING AND ANALYZING RECEIVABLES LO 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 OBJECTIVES Amounts due to a business from its customers or other entities expected to be collected in cash Frequently classified as Accounts receivable – amounts owed by customers due to the sale of goods and services Notes receivable – formal credit instrument (written promise to pay) Other receivables – interest receivable, loans and advances to employees, recoverable sales tax, income tax receivable Types of Receivables A receivable is recorded when service is provided on account or at point of sale of merchandise on account A receivable is reduced when cash is collected, a sales discount is taken, or the merchandise is returned by the customer Accounts Receivable Subsidiary 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 ledger The single accounts receivable account in the general ledger is the control account Accounts Receivable Subsidiary Ledger If 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 due Seller recognizes interest revenue and increases the account receivable balance owed by the customer Interest Revenue What kind of receivables would a hospital report on its statement of financial position? Discussion Question Some accounts receivable become uncollectible Losses from these uncollectible accounts are debited to an account called Bad Debts Expense Bad debts expense is recognized in the same period that the related sales revenue is generated .