Receivables

 Berawal dari mata kuliah [MK] Pengantar Akuntansi 1, piutang [receivables] ini akan ‘diseret-seret’ di MK akuntansi berikutnya.  Di semua MK akuntansi tersebut inti receivables sama saja.

Berikut adalah catatan topik receivables tersebut yang berasal dari bab 9 buku Accounting Principles oleh Weygandt, Keiso, dan  Kimmel:

ACCOUNTING FOR RECEIVABLES

Study Objectives

  1. Identify the different types of receivables.
  2. Explain how companies recognize accounts receivable.
  3. Distinguish between the methods and bases companies use to value accounts receivable.
  4. Describe the entries to record the disposition of accounts receivable.
  5. Compute the maturity date of and interest on notes receivable.
  6. Explain how companies recognize notes receivable.
  7. Describe how companies value notes receivable.
  8. Describe the entries to record the disposition of notes receivable.
  9. Explain the statement presentation and analysis of receivables.

Accounting for Receivables

Types of Receivables

  • Accounts receivables
  • Notes receivable
  • Other receivables

Accounts Receivable

  • Recognizing accounts receivable
  • Valuing accounts receivable
  • Disposing of accounts receivable

Notes Receivable

  • Determining maturity date
  • Computing interest
  • Recognizing notes receivable
  • Valuing notes receivable
  • Disposing of notes receivable

Statement Presentation and Analysis

  • Presentation
  • Analysis

LO 1  Identify the different types of receivables.  (LO = Learning Objective).

Types of Receivables

  • Amounts owed by customers that result from the sale of goods and services.  [Accounts Receivable]
  • Claims for which formal instruments of credit are issued as proof of debt.  [Notes Receivable]
  • “Non-trade” (interest, loans to officers, advances to employees, and income taxes refundable [Other Receivables]

Accounts Receivable

Three accounting issues:

  1. Recognizing accounts receivable.
  2. Valuing accounts receivable.
  3. Disposing of accounts receivable.

LO 2  Explain how companies recognize accounts receivable.

Recognizing Accounts Receivable

The following exercise was illustrated in Chapter 5.  For simplicity, inventory and cost of goods sold have been omitted.

E5-5  Presented are transactions related to Wheeler Company.

  1. On December 3, Wheeler Company sold $500,000 of merchandise to Hashmi Co., terms 2/10,n/30, FOB shipping point.
  2. On December 8, Hashmi Co. was granted an allowance of $27,000 for merchandise purchased on December 3.
  3. On December 13, Wheeler Company received the balance due from Hashmi Co.

Instruction:  Prepare the journal entries to record these transactions on the books of Wheeler Company using a perpetual inventory system!

E5-5  Prepare the journal entries for Wheeler Company.

1.  On December 3, Wheeler Company sold $500,000 of merchandise to Hashmi Co., terms 2/10, n/30, FOB shipping point. 

  • Dec. 3,  [D]  Accounts receivable                         500,000
  • Dec. 3,  [C]  Sales                                                   500,000

2.  On December 8, Hashmi Co., was granted an allowance of $27,000 for merchandise purchased on December 3.

  • Dec. 8,  [D]  Sales returns and allowances            27,000
  • Dec. 8,  [C]  Accounts receivable                            27,000

3.  On December 13, Wheeler Company received the balance due from Hashmi Co.

  • Dec. 13,  [D]  Cash                                                  463,540 ***
  • Dec. 13,  [D]  Sales Discounts                                    9,460 **
  • Dec. 13,  [C]  Accounts receivable                        473,000 *
  • *     ($500,000 – $27,000)
  • **   [($500,000 – $27,000) x 2%]
  • *** ($473,000 – $9,460)

LO 3  Distinguish between the methods and bases companies use to value accounts receivable.

Valuing Accounts Receivable

  • Are reported as a current asset on the balance sheet.
  • Are reported at the amount the company thinks they will be able to collect.
  • Sales on account raise the possibility of accounts not being collected.
  • Valuation can be difficult because an unknown amount of receivables will become uncollectible.

Methods of Accounting for Uncollectible Accounts:

  1. Direct Write-Off
  2. Allowance Method

Direct Write-Off:  Theoretically undesirable:

  • no matching.
  • receivable not stated at net realizable value.
  • not acceptable for financial reporting.

Allowance Method:  Losses are estimated:

  • better matching.
  • receivable stated at net realizable value.
  • required by GAAP [Generally Accepted Accounting Principles].

Presentation of Accounts Receivable

Asset

Current Assets:

  •  
    • Cash                                                                             $    346
    • Accounts receivable                                  $   500
    • Less:  Allowance for doubtful accounts          25          475
    • Merchandise inventory                                                   812
    • Prepaid expenses                                                               40
    • Total current assets                                                      1,673

or

Assets

Current Assets:

  •  
    • Cash                                                                             $   346
    • Accounts receivable, net of $25 allowance
    •     for doubtful accounts                                                  475
    • Merchandise inventory                                                  812
    • Prepaid expenses                                                              40
    • Total current assets                                                     1,673

Allowance Method for Uncollectible Accounts

  1. Companies estimate uncollectible accounts receivable.
  2. To record estimated uncollectibles, companies debit Bad Debts Expense and credit Allowance for Doubtful Accounts (a contra-asset account).
  3. When companies write off specific uncollectible accounts, they debit Allowance for Doubtful Accounts and credit Accounts Receivable.

E9-6  On December 31, 2008, Jarnigan Co. estimated that 2% of its net sales of $400,000 will become uncollectible.  The company recorded this amount as an addition to Allowance for Doubtful Accounts.  On May 11, 2009, Jarnigan Co. determined that Terry Frye’s account was uncollectible and wrote off $1,100.  On June 12, 2009, Frye paid the amount previously written off.

Instruction:  Prepare the journal entries on December 31, 2008, May 11, 2009, and June 12, 2009!

E9-6 Prepare the journal entries on December 31, 2008, May 11, 2009, and June 12, 2009.

1.  [Estimate] On December 31, 2008, Jarnigan Co. estimated that 2% of its net sales of $400,000 will become uncollectible.  The company recorded this amount as an addition to Allowance for Doubtful Accounts.

  • Dec. 31,  [D]  Bad debt expense                                 8,000*
  • Dec. 31,  [C]  Allowance for doubtful accounts         8,000*
  • *  [2% x $400,000]

2.  [Write-off] On May 11, 2009, Jarnigan Co. determined that Terry Frye’s account was uncollectible and wrote off $1,100.

  • May 11,  [D]  Allowance for doubtful accounts        1,100
  • May 11,  [C]  Accounts receivable                             1,100

 3.  [Recovery] On June 12, 2009, Frye paid the amount previously written off.

  • June 12,  [D]  Accounts receivable                            1,100
  • June 12,  [C]  Allowance for doubtful accounts        1,100
  • June 12,  [D]  Cash                                                       1,100
  • June 12,  [C]  Accounts receivable                             1,100

Bases Used for Allowance Method

  • Percentage of Sales: Emphasis on Income Statement Relationships
  • Matching:  Sales  <—–>  Bad Debts Expense
  • Percentage of Receivables:  Emphasis on Balance Sheet Relationships
  • Cash realizable Value:  Accounts Receivable  <—–>  Allowance for Doubtful Accounts

Example Data

  • Credit Sales
  • Estimated % of credit sales uncollectible
  • Accounts receivables [A/R] balance
  • Estimated of A/R not collectible
  • Unadjusted balance in Allowance for Doubtful Accounts:  Case 1  $150  [credit balance]
  •                                                                                                     Case 2  $150  [debit balance]

Percentage of Sales

disregards the existing balance in Allowance for Doubtful Accounts

  •                                                                                                           Case 1                 Case 2
  • Actual balance [credit]                                                                    (150)                    150
  • Estimated uncollectible                                                                (6,250)               (6,250)
  • Ending balance                                                                              (6,400)               (6,100)

The allowance for Doubtful Accounts has an ending balance of $6,400 in Case 1 and $6,100 in Case 2.

Percentage in Receivables

 

  • to be continued …

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