8-1


REPORTING AND
ANALYZING
RECEIVABLES

8-2

Financial Accounting, Seventh Edition

8


Learning
Learning Objectives
Objectives
After studying this chapter, you should be able to:

8-3

1.

Identify the different types of receivables.

2.

Explain how accounts receivable are recognized in the accounts.

3.


Seventh Edition
Kimmel Weygandt Kieso
8-4


Types
Types of
of Receivables
Receivables
Amounts due from individuals and companies that are
expected to be collected in cash.
Amounts customers
owe on account that
result from the sale of
goods and services.

Written promise
(formal instrument) for
amount to be
received. Also called
trade receivables.

Nontrade receivables
such as interest,
loans to officers,
advances to
employees, and
income taxes
refundable.



LO 1 Identify the different types of receivables.


Accounts
Accounts Receivable
Receivable
Two accounting issues:
1. Recognizing accounts receivable.
2. Valuing accounts receivable.

Recognizing Accounts Receivable

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

Service organization - records a receivable when it
performs service on account.



Merchandiser - records accounts receivable at the point
of sale of merchandise on account.

LO 2 Explain how accounts receivable are recognized in the accounts.


Accounts
Accounts Receivable


100

Illustration: On July 11, Jordache receives payment from
Polo Company for the balance due.
Jul. 11

Cash
Sales discounts ($900 x .02)
Accounts receivable

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882
18
900

LO 2 Explain how accounts receivable are recognized in the accounts.


Accounts
Accounts Receivable
Receivable
Illustration: Some retailers issue their own credit cards. Assume
that you use your JCPenney Company credit card to purchase
clothing with a sales price of $300.
Accounts receivable

300



Total take: $1.5 million
The Missing Control
Segregation of duties. The foundation should not have allowed an accounts receivable clerk,
whose job was to record receivables, to also handle cash, record cash, make deposits, and
especially prepare the bank reconciliation.
Independent internal verification. The controller was supposed to perform a thorough review
of the bank reconciliation. Because he did not, he was terminated from his position.
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Accounts
Accounts Receivable
Receivable
Valuing Accounts Receivable


Current asset.



Valuation (net realizable value).

Uncollectible Accounts Receivable

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

Sales on account raise the possibility of accounts not



Receivable not stated at net
realizable value.



Receivable stated at net
realizable value.



Not acceptable for financial
reporting.



Required by GAAP.

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LO 3 Describe the methods used to account for bad debts.


Accounts
Accounts Receivable
Receivable
How are these accounts presented on the Balance Sheet?

Accounts Receivable

Accounts
Accounts Receivable
Receivable
Alternate
Presentation

8-16


Accounts
Accounts Receivable
Receivable
Journal entry for credit sale of $100?
Accounts receivable
Sales

Accounts Receivable

100
100

Allowance for
Doubtful Accounts

Beg.

500

25



600

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100
100

Allowance for
Doubtful Accounts
25

Beg.

25

End.


Accounts
Accounts Receivable
Receivable
Collected $333 on account?
Cash

333

Accounts receivable

Accounts Receivable

Collected $333 on account?
Cash

333

Accounts receivable

Accounts Receivable
Beg.

500

Sale

100

End.

267

8-20

333

333

Allowance for
Doubtful Accounts
25


267

8-21

333

15

Allowance for
Doubtful Accounts
25

Beg.

25

End.

Coll.


Accounts
Accounts Receivable
Receivable
Adjustment of $15 for estimated bad debts?
Bad debt expense

15

Allowance for Doubtful Accounts

Est.

40

End.


Accounts
Accounts Receivable
Receivable
Write-off of uncollectible accounts for $10?
Allowance for Doubtful accounts
Accounts receivable

Accounts Receivable
Beg.

500

Sale

100

End.

267

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333


Accounts Receivable
Beg.

500

Sale

100

End.
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257

333

Coll.

10

W/O

10

Allowance for
Doubtful Accounts

W/O