Accounts Receivable
- Short-term asset
- Amounts owed by customers on
account - Expected to be collected within 30
days
Notes Receivable
- Long-term asset
- Supported by formal instruments of credit (a written note)
- For periods of 30 days or longer
- Interest bearing and has a due date
The three primary accounting problems associated with accounts receivable are:
- Recognizing accounts receivable.
- Valuing accounts receivable.
- Disposing of accounts receivable.
A receivable is recorded when:
– Services are provided
– Merchandise is sold on account
Subsidiary Accounts – Receivable ledger
- Used to track individual customer accounts
Each entry is effectively posted twice:
– To the subsidiary ledger
– To the general ledger in summary form
Credit may be granted in exchange for a promissory note:
– A formal contract signed between two parties
– A written promise to pay a specified amount of money on demand or at a definite time
Recognizing Notes Receivable transaction
Dr notes receivable
Cr accounts receivable
Recording Interest transaction
Dr. interest receivable
Cr. interest revenue
Disposing of Notes Receivable
A note is honoured when paid in full on its maturity date
Disposing of Notes Receivable transaction
Dr. Accounts receivable
Cr. Notes receivable
(Cr. Interest receivable/revenue)
