What are the types of receivables?
Amounts owed to company by customers, employees, gov. and others. (accounts receivable, notes receivable, other receivables)
When and how do we record accounts receivable?
Is recorded when service is provided on account, initially recorded at transaction price, receivable reduced by variable consideration such as expected sales returns and allowances and by sales discounts.
What are subsidiary ledger?
Group of accounts that share common characteristic, single accounts receivable account is the control account.
How do we account for credit losses?
Expected credit losses are debited to an account called credit losses. Credit loss expense is recognized in same period as sales.
What is the allowance method?
Estimated expected credit losses (end of period), Amount estimated is shown in allowance for expected credit losses.
What do most companies use to determine allowance?
Percentage of receivables
How do we determine amount of credit losses to be expensed in period?
Difference between required balance and existing balance in allowance account. = credit losses for period
How do we measure and record estimated uncollectible accounts?
Reported in statement of income as an operating expense. Balance in allowance for expected credit loss is deducted from accounts receivable in current assets section of statement of financial position.
How do we record a write off?
Write off amount is removed from both accounts receivable and allowance for expected credit losses. (carry amount should stay the same).
How do we record recovery of uncollectible account?
- Reverse write-off entry to reinstate accounts, 2. Record cash collection
What is a account for notes receivable, and when do we use it?
Stronger legal claim to assets than accounts receivable, written promise to repay on demand. Requires payment of interest, extends for time periods greater than 30 days, often used when people lend or borrow money.
What is the formula for calculating interest income on an interest-bearing note?
Face value of note x Annual interest rate x Time in terms of one year = interest
When do we derecognize a note receivable?
Honoured, paid in full at maturity date.
What do we have to do when we derecognize a note recievable?
Cash Debit, Notes receivable, Credit, interest receivable (we calculate) Credit.
How do we derecognize a notes receivable that note is dishonoured but eventual collection is expected.
Same as other derecognizition, but instead of cash you debit accounts receivable.
How do we set up a statement?
Short-term receivables, go into current assets section, receivables due in more than a year go into non-current assets section. Credit losses reported as operating expense.
