Types of receivables | Chapter 8 | Reporting and Analyzing Receivables

Chapter 1: Introduction

  • Learning Objectives

    • Identify types of receivables

    • Record accounts receivable transactions

  • Personal Note

    • Introduces personal dogs, Bambi (Chinese Crested) and Guinness (French Bulldog)

    • Shares a light-hearted moment to create a rapport with the audience

Types of Receivables

  • Definition of Asset

    • Result of a past transaction owned by the company, resulting in future inflow of resources

  • General Overview of Receivables

    • Amounts owed to a company by customers, employees, government, etc.

  • Three Main Types of Receivables:

    • Accounts Receivable (AR)

      • Amounts owed by customers due to purchases on account (e.g., owed for goods/services)

      • Invoiced situation where payments typically happen within 30 to 90 days

      • Example: Customer buys merchandise but pays later

    • Notes Receivable (NR)

      • Formal credit instruments where a loan is documented with specific terms, often including interest

      • Typically for amounts greater than 90 days, usually formally structured

      • Can be short-term (less than one year) or long-term (more than one year)

    • Other Receivables

      • Types of receivables that don't fit into AR or NR, such as interest receivable or loans to company executives

      • Example: Favorable loans to executives for home purchases

Chapter 2: Spongebob's Accounts

  • Employee Loans

    • Companies offer loans at favorable rates to retain employees during relocations, e.g., home purchases

    • Possible tax consequences for advantageous loans

  • Sales Tax Receivable

    • Situation where a company has overpaid taxes and anticipates receiving a refund from the government

Scenario Assessments

  • Scenario Exercise on Classifying Types of Receivables

    1. Loan to Vice President's child = Other Receivable

    2. Customer buys merchandise on account = Accounts Receivable

    3. SpongeBob signs a note for outstanding payment = Note Receivable

Chapter 3: Recognizing Inventory

  • Recording a Receivable

    • Receivables recognized at the point of sale or when services are provided

    • Example: Sale of SquarePants for $10,000

    • Entry: Debit Accounts Receivable, Credit Sales Revenue

  • Cost of Goods Sold (COGS)

    • Recognition of cost associated with the sale, reflecting actual inventory cost (e.g., $7,500 for SquarePants)

  • Inventory Sale Discount

    • Discounts reduce expected cash inflow (e.g., 2% discount on $10,000 sale results in cash expected of $9,800)

  • Allowance for Doubtful Accounts

    • Estimation of expected defaults based on historical trends

  • Type of Receivables in Context

    • Hospitals might report amounts due from government or private insurers

Chapter 4: Reflecting Inventory

  • Transaction Recording Example:

    • July 1: Merchandise sold on account to Cambridge for $58,000

      • Debit Accounts Receivable, Credit Sales

      • Reflects movement of inventory, debit cost of goods sold, credit inventory for $32,000

    • Inventory Return

      • July 8: Cambridge returns inventory ($1,320)

      • Record as debit Sales Returns, credit Accounts Receivable, restore inventory

    • Final Payment Recording

      • July 29: Cambridge pays balance after return; record debit Cash, credit Accounts Receivable for the adjusted amount