Chapter 8 accounting for receivables

What are receivables?

They are amounts due from individuals and companies. They can also be a significant percentage of total current assets.

What are types of receivables?

There are account receivables and note receivables.

What are account receivables?

Amounts owed to a business by customers for goods or services sold on credit, usually due within a short time frame.

What are notes receivables?

Written promises from customers to pay a specified amount at a future date, often with interest. They are formal agreements usually involving a longer payment term than account receivables.

When do service organizations record there receivables?

Service organizations record their receivables when they have provided services to customers and have an expectation of payment, typically at the time the service is performed.

When do merchandisers record there receivables?

Merchandisers record their receivables when they sell goods or products to customers and expect payment, usually at the point of sale.

How are expected losses from sales on account recorded?

From bad debt accounts.

How are valuing accounts receivables reported?

They are reported as a current asset.

What is the direct write-off method?

The direct write-off method is an accounting approach where bad debts are recognized only when they are deemed uncollectible, reducing accounts receivable directly.

When is bad debt expense estimated?

At the end of each period.

what is net relizable value?

Net realizable value is the estimated selling price of accounts receivable, less any costs associated with completing the sale, such as selling expenses or estimated uncollectible amounts.

What are the three steps to allowance methods?

1. Estimate uncollectible accounts.

2. Adjust the allowance for doubtful accounts.

3. Write off specific uncollectible accounts.

What are the two types of allowance methods?

The two types of allowance methods are the percentage of sales method and the aging of accounts receivable method, which help in estimating uncollectible accounts.

What is percentage receivables?

A method for estimating uncollectible accounts based on the percentage of accounts receivable expected to be uncollectible. It determines a desired ending balance.

What is the aging method?

A method for estimating uncollectible accounts by categorizing receivables based on the length of time they have been outstanding. It uses historical data to predict the likelihood of default. The accounting entry is the same.

The older the balance the less likely it is to be…

collected, requiring higher allowances.