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Account Receivable

1. A claim against the customer created by selling merchandise or services on credit
2. Someone buys from you on credit IOU, due in 30 or 60 days
3. Current Assest

Notes Receivable

1. A customer's written promise to pay an amount and possibly interest at an agreed-uopn rate
2. More formal written out IOU period more than 60 days
3. Current Assest


Noncurrent Assest - Collection expected beyond 1 year

Bad Debt Expense

1. Operating expense incurred failure to collect receivables
2. Uncollectible Account Expense
3. Doubtful account Expense

2 Methods

- Direct Write Off Method
- Allowance Method

Direct Write Off Method

Recognizes the expense only when an account is judged to be WORTHLESS or uncollectible

Small Companies (Direct Write Off Method)

DEBIT Bad Debt Exp
CREDIT Account Receivable (A.R)
but if they do come back and pay then.....
CREDIT Bad Dept Exp
and then....
DEBIT cash

Allowance Method

1. Estimating uncollectible accounts at the end of the accounting period
2. Provides an expense for uncollectible receivables in advance of their write-off
3. % of sales
4. analysis of receivables

Big Companies (Allowance Method)

DEBIT Bad Debt Exp
CREDIT Allowance for Doubtful Accounts (ADA)
then reduce value receivables to amount cash expected which is called the Net Realizable Value on the balance sheet (AR - ADA<contra asset> = NRV<think what I am going to get>)

$ x (day/360) x (%/100) =


The one to who the note is PAYABLE is called?


The one MAKING the promise is the?


Due Date =

Maturity Date

Face Amount(Principal) + Principal X Days X % note =

Maturity Value

Allowance Method journalize

1. Reduce value of receivables to amount of cash expected
2. Allocation to current period expected expense reduction
3. DEBITS Uncollectible Accounts Exp, CREDIT Allowance for Doubtful Accounts.
4. When is uncollectible, its written off against the allowance account

Using the percent of sales.....

Adjusting entry is made without regard to the balance of the allowance account

Using the analysis of receivables

Adjusting entry is recorded so that the balance of the allowance account will equal the estimated uncollectibles at the end of the period

Allowance account will have a credit balance after the adjusting entry been posted (Allowance Method)

Is a Contra Asset Account

Direct Write-Off journalize

1. DEBITS Bad Debt Expense CREDIT Accounts Receivable
2. Neither allowance account nor adjusting entry is needed at the end of the period

Promissory Notes

Written promise to pay a sum of money on demand or at a definite time

Promissory Notes reported includes

- Due
- Interest rate
- Maturity Value

Computing interest on a note

Principal X Rate X Time = Interest

Due Date define

The date a note is to be paid

Maturity Value of a note is =

Face Amount + Interest = MV

Notes Receivable journalize

1. when A.R is recorded DEBIT Notes Receivable, CREDIT Accounts Receivable
2. when note mature(all goes good); DEBIT cash, CREDIT Notes Receivable and Interest Revenue

Maker fails to pay the debt on the due date

The note is said to be dishonered

When note is said to be dishonered (all goes bad)

1. Maturity Value DEBIT Acounts Receivable
2. Face Value CREDIT Notes Receivable and Interest Revenue for the difference

Account Receivable Turnover

Net Sales / Avg Accounts receivable

Measure how frequently A.R are being converted into cash

# of Days' Sales

End-of-Year A.R / Avg daily sales

Measures length of time the A.R have been outstanding

Aging the receivables

Analyze A.R according to various age grouping, with due date being the base point for determing age

Allowance for Doubtful Accounts

the Contra Asset account for A.R

Maturity Value define

Amount due at the maturity or due date of a note

Net Realizable Value =

1. A.R - ADA = NRV
2. Estimated selling price of an item - Any direct costs of disposal = Net Realizable Value


All money claims against other entites, including people, business firms, and other organizations




DEBIT Bad Debt Exp CREDIT Allowance for Doubtful Accounts ADA

Uncollectible Receivables is called

Bad Debt Expense

Regardless of the care used in granting credit
and the collection procedures used?

A part of the credit sales will not be collectible.

Other Receivables expected to be collected within 1 year are classified as

Current assets

2 methods used to estimate uncollectible accounts receivable at the end of the period

1. Percent of sales
2. Analysis of the receivables

Percent of Sales Method

1.If credit sales for the period are $3,000,000 and it is estimated that ¾% will be uncollectible, Bad Debt Expense is debited for $22,500 ($3,000,000 × .0075). This approach disregards the balance of $3,250 in the allowance account before the adjustment.
2. After the following adjusting entry on December 31 is posted, Allowance for Doubtful Accounts will have a balance of $25,750 ($3,250 + $22,500).

When a note receivable is dishonored, A.R is DEBIT for what amount?

the MV of the note

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