ACCOUNTING—

INDONESIA ADAPTATION
4 TH EDITION—VOLUME 1
Carl S. Warren
James M. Reeve
Jonathan E.Duchac
Ersa Tri Wahyuni
Amir Abadi Jusuf
 CHAPTER 9

RECEIVABLES
Learning Objectives
Describe the direct write-
Describe the accounting
Describe the common off method of accounting
for uncollectible
classes of receivables for uncollectible
receivables
receivable

Compare the direct write- Describe the reporting

off and allowance Describe the accounting receivable on the
methods of accounting for notes receivable statement of financial
for uncollectible accounts position

Describe and illustrate the

use of accounts receivable
turnover and number of
days’ sales in receivables
to evaluate company’s
efficiency in collecting its
receivables
Classification of Receivables

Accounts receivable or notes receivable results

from sales on account.

The term receivables includes all money

claims against other entities, including people,
companies, and other organizations.

Receivables are usually a significant portion of

the total current assets.
Accounts Receivable

 Transaction creates a receivable usually is a selling

merchandise or services on account (on credit).
 The receivable is recorded as a debit to Accounts Receivable.
 Such accounts receivable are normally collected within a
short period, such as 30 or 60 days.
 Accounts receivable is classified on the statement of financial
position as a current asset.
Notes Receivable

 Amounts that customers owe for which a formal, written

instrument of credit has been issued.
 If They expected to be collected within a year, classified as
a current asset.
 May also be used to settle a customer’s account receivable.
 Notes and accounts receivable that result from sales
transactions are sometimes called trade receivables.
Other Receivables

Other receivables include interest receivable, taxes

receivable, and receivables from officers or employees and
are normally reported separately on the statement of
financial position.

If they are expected to be collected within one year, they

are classified as current assets.

If collection is expected beyond one year classified as

noncurrent assets and reported under the caption
Investments.
Uncollectible Receivables (slide 1 of 3)

 Some credit sales will be uncollectible.

 The operating expense recorded from uncollectible
receivables is called bad debt expense, uncollectible
accounts expense, or doubtful accounts expense.
Uncollectible Receivables (slide 2 of 3)

 Some indications that an account may be uncollectible include

the following:

The customer does

The receivable is not respond to the The customer files
past due. company’s attempts for bankruptcy.
to collect.

The company
The customer closes
cannot locate the
its business.
customer.
• records bad debt expense by method
estimating uncollectible allowance
accounts at the end of the The
accounting period.
method
• records bad debt expense
only when an account is
write-off
determined to be worthless.
The direct
Uncollectible Receivables (slide 3 of 3)
Direct Write-Off Method for Uncollectible
Accounts (slide 1 of 2)

 Bad Debt Expense is not recorded until the customer’s

account is determined to be worthless.
 Assume that a Rp4,200,000 account receivable from Siska
Amalia has been determined to be uncollectible.
 The entry to write off the account is as follows:
Direct Write-Off Method for Uncollectible
Accounts (slide 2 of 2)

 An account receivable that has been written off may be

collected later.
 The account is reinstated by an entry that reverses the write-
off entry.
 The cash received in payment is then recorded as a receipt on
account.
 Assume that the Siska Amalia account of Rp4,200,000 written
off on May 10 is later collected on November 21.
Allowance Method for Uncollectible
Accounts (slide 1 of 3)

Estimates the
Based on this
uncollectible
estimate, Bad Debt
accounts receivable
Expense is recorded
at the end of the
by an adjusting entry.
accounting period.
Allowance Method for Uncollectible
Accounts (slide 2 of 3)
 Assume that Karya Mandiri began operations August 1.
 As of the end of its accounting period on December 31, 2015,
Karya Mandiri has an accounts receivable balance of
Rp200,000,000.
 Based on industry averages, Karya Mandiri estimates that
Rp30,000,000 of the December 31 accounts receivable will be
uncollectible. However, on December 31, Karya Mandiri
doesn’t know which customer accounts will be uncollectible.
Allowance Method for Uncollectible
Accounts (slide 3 of 3)
 Using the Rp30,000,000 estimate, the following adjusting
entry is made on December 31:
Write-Offs to the Allowance Account
(slide 1 of 5)

 When a customer’s account is identified as uncollectible, it is

written off against the allowance account.
 To illustrate, on January 21, 2016, Johan Putra’s account of
Rp6,000,000 with Karya Mandiri is written off as follows:
Write-Offs to the Allowance Account
(slide 2 of 5)

 At the end of a period, Allowance for Doubtful Accounts will

normally have a balance.
 The allowance account will have a credit balance at the end of
the period if the write-offs during the period are less than the
beginning balance.
 It will have a debit balance if the write-offs exceed the
beginning balance.
Write-Offs to the Allowance Account
(slide 3 of 5)
Write-Offs to the Allowance Account
(slide 4 of 5)

 Assume that during 2016 Karya Mandiri writes off

Rp26,750,000 of uncollectible accounts, including the
Rp6,000,000 account of Johan Putra recorded on January 21.
 Allowance for Doubtful Accounts will have a credit balance
of Rp3,250,000 (Rp30,000,000 – Rp26,750,000).
Write-Offs to the Allowance Account
(slide 5 of 5)

 If Karya Mandiri had written off Rp32,100,000 in accounts

receivable during 2016.

 The allowance account balances (credit balance of Rp3,250,000

and debit balance of Rp2,100,000) in the preceding illustrations
are before the end-of-period adjusting entry.
 After the end-of-period adjusting entry is recorded, Allowance for
Doubtful Accounts should always have a credit balance.
Collection of Receivable That Has Been Written Off

 Assume that Nina Setiawati’s account of Rp5,000,000 which

was written off on April 2 is collected later on June 10.
Karya Mandiri records the reinstatement and the collection
as follows:
Estimating Uncollectibles

 The two methods used to estimate uncollectible accounts are

as follows:

method
sales method
receivables
Percent of
Analysis of
Percent of Sales Method (slide 1 of 4)

If the portion of credit

Uncollectible accounts sales to sales is
can be estimated as a relatively constant, the
percent of credit sales. percent may be applied
to total sales.
Percent of Sales Method (slide 2 of 4)

 Assume the following data for Karya Mandiri on December 31,

2016, before any adjustments:

 Bad Debt Expense of Rp22,500,000 is estimated as follows:

Percent of Sales Method (slide 3 of 4)

 The adjusting entry for uncollectible accounts on December

31, 2016, is as follows:
Percent of Sales Method (slide 4 of 4)

 After the adjusting entry is posted to the ledger:

Analysis of Receivables Method
(slide 1 of 7)

Based on the assumption

that the longer an account
receivable is outstanding,
the less likely that it will be
collected.
• Each account is placed in an aged class according to its days Step 3
past due.
• The number of days each account is past due is determined.
• This is the number of days between the due date of the
Step 2
account and the date of the analysis.
• The due date of each account receivable is determined.
Step 1
(slide 2 of 7)
Analysis of Receivables Method
Analysis of Receivables Method
(slide 3 of 7)

Typical aged classes include the following:

 Not past due
 1–30 days past due
 31–60 days past due
 61–90 days past due
 91–180 days past due
 181–365 days past due
 Over 365 days past due
• The estimated total of uncollectible accounts is
determined as the sum of the uncollectible accounts
Step 6
for each aged class.
• The total for each aged class is multiplied by an
estimated percentage of uncollectible accounts for
Step 5
that class.
• The totals for each aged class are determined.
Step 4
(slide 4 of 7)
Analysis of Receivables Method
Analysis of Receivables Method
(slide 5 of 7)
 Assume that Karya Mandiri uses the analysis of receivables
method instead of the percent of sales method.
 Karya Mandiri prepared an aging schedule for its accounts
receivable of Rp240,000,000 as of December 31, 2016, as
shown in Exhibit 2.
Exhibit 2: Aging of Receivables Schedule
Analysis of Receivables Method
(slide 6 of 7)
 Comparing the estimate of Rp26,490,000 with the
unadjusted balance of the allowance account determines the
amount of the adjustment for Bad Debt Expense.
 For Karya Mandiri, the unadjusted balance of the allowance
account is a credit balance of Rp3,250,000.
Analysis of Receivables Method
(slide 7 of 7)
 After the preceding adjusting entry is posted to the ledger:
 Bad Debt Expense : Rp23,240,000.
 Allowance for Doubtful Accounts : of Rp26,490,000, and
 The net realizable value of the receivables:
Rp213,510,000 (Rp240,000,000 – Rp26,490,000).
Comparing Estimation Methods
Comparing Direct Write-Off and Allowance
Methods (slide 1 of 3)

 Journal entries for the direct write-off and allowance

methods are illustrated and compared in this section.
 As a basis for illustration, the following transactions, taken
from the records of PT Cakrawala for the year ending
December 31, 2015, are used:
Comparing Direct Write-Off and Allowance
Methods (slide 2 of 3)
Comparing Direct Write-Off and Allowance
Methods (slide 3 of 3)
Characteristics of Notes Receivable

 Characteristics of a promissory note are as follows:

1. The maker is the party making the promise to pay.
2. The payee is the party to whom the note is payable.
3. The face amount is the amount for which the note is written on
its face.
4. The issuance date is the date a note is issued.
5. The due date or maturity date is the date the note is to be paid.
6. The term of a note is the amount of time between the issuance
and due dates.
7. The interest rate is that rate of interest that must be paid on the
face amount for the term of the note.
Exhibit 6: Promissory Note
Promissory Note

 The interest on a note is computed as follows:

Interest = Face Amount × Interest Rate × (Term/360 days)
 The interest rate is stated on an annual (yearly) basis, while the
term is expressed as days. Thus, the interest on the note in
Exhibit 6 is computed as follows:
Interest = Rp2,000,000 × 10% × (90/360) = Rp50,000
 The maturity value is the amount that must be paid at the due
date of the note, which is the sum of the face amount and the
interest.
 The maturity value of the note in Exhibit 6 is Rp2,050,000
(Rp2,000,000 + Rp50,000).
Accounting for Notes Receivable
(slide 1 dari 5)
 A promissory note may be received by a company from a
customer to replace an account receivable.
 In such cases, the promissory note is recorded as a note
receivable.
 Assume a company accepts a 30-day, 12% note dated
November 21, 2016, in settlement of the account of Nusa
Kencana, which is past due and has a balance of
Rp6,000,000.
Accounting for Notes Receivable
(slide 2 dari 5)
 At the due date, the company records the receipt of
Rp6,060,000.
Accounting for Notes Receivable
(slide 3 dari 5)
 If the maker of a note fails to pay the note on the due date,
the note is dishonored note receivable.
 For example, assume that the Rp6,000,000, 30-day, 12%
note received from Nusa Kencana And recorded on
November 21 is dishonored.
Accounting for Notes Receivable
(slide 4 dari 5)
 A company receiving a note should record an adjusting entry
for any accrued interest at the end of the period.
 For example, assume that PT Karya Utama issues a
Rp4,000,000, 90-day, 12% note dated December 1, 2016, to
settle its account receivable.
 The accounting period ends on December 31.
Accounting for Notes Receivable
(slide 5 dari 5)
Reporting Receivables on the Statement of
Financial Position

 All receivables that are expected to be realized in cash within

a year are reported in the Current assets.
 Current assets are normally reported in the order of their
liquidity, beginning with cash and cash equivalents.
The Statement of Financial Position Presentation
for Receivables for Kedai Kopi
 The number The accounts
of days’ sales receivable
in receivables turnover
Financial Analysis and Interpretation
Accounts Receivable Turnover

 Measures how frequently during the year the accounts

receivable are being converted to cash.
 For example, with credit terms of n/30, the accounts
receivable should turn over about 12 times per year.
 The accounts receivable turnover is computed as follows:
Accounts Receivable Turnover for PT
Holcim Indonesia
The Number of Days’ Sales in Receivables

 An estimate of the length of time the accounts receivable

have been outstanding.
 With credit terms of n/30, the number of days’ sales in
receivables should be about 30 days.
 It is computed as follows:
The Number of Days’ Sales in Receivables
for PT Holcim Indonesia