Accounting Principles, 6e

Weygandt, Kieso, & Kimmel

Prepared by
Marianne Bradford, Ph. D.
Bryant College

John Wiley & Sons, Inc.

 CHAPTER 9
ACCOUNTING FOR RECEIVABLES
After studying this chapter, you should be able to:
1 Identify the different types of receivables.
2 Explain how accounts receivable are
recognized in the accounts.
3 Distinguish between the methods and bases
used to value accounts receivable.
4 Describe the entries to record the disposition of
accounts receivable.
5 Compute the maturity date of and interest on
notes receivable.
 CHAPTER 9
ACCOUNTING FOR RECEIVABLES
After studying this chapter, you should be able to:
6 Explain how notes receivable are recognized in
the accounts.
7 Describe how notes receivable are valued.
8 Describe the entries to record the disposition of
notes receivable.
9 Explain the statement presentation and analysis
of receivables.
 PREVIEW OF CHAPTER 9
ACCOUNTING FOR
RECEIVABLES

Statement
Accounts Notes Presentation and
Receivable Receivable Analysis of
Receivables
 
Types of Determining  Presentation
Receivables maturity date

Recognizing 
Computing interest
 Analysis
accounts receivable  Recognizing notes

Valuing accounts receivable
receivable  Valuing notes
 Disposing of receivable
accounts receivable 
Disposing of notes
receivable
 STUDY
STUDY OBJECTIVE
OBJECTIVE 11

................................

1 Identify the different types of

receivables.
 RECEIVABLES
 The term receivables refers to amounts due from
individuals and other companies; they are claims
expected to be collected in cash.
 Three major classes of receivables are:
1 Accounts Receivable - amounts owed
by customers on account
2 Notes Receivable - claims for which
formal instruments of credit are issued
3 Other Receivables - include non-trade
receivables. Examples are interest receivable
and advances to employees
 ACCOUNTS RECEIVABLE

Three primary accounting issues are

associated with accounts receivable:
1 Recognizing accounts receivable.
2 Valuing accounts receivable.
3 Disposing of accounts receivable.
 STUDY
STUDY OBJECTIVE
OBJECTIVE 22

................................

2 Explain how accounts receivable

are recognized in the accounts.
 RECOGNIZING ACCOUNTS
RECEIVABLE
General Journal
Date Account Titles Debit Credit

July 1 Accounts Receivable – Polo Company 1,000

Sales 1,000

When a business sells merchandise to a customer on credit,

Accounts Receivable is debited and Sales is credited.
 RECOGNIZING ACCOUNTS
RECEIVABLE
General Journal
Date Account Titles Debit Credit
July 5 Sales Returns and Allowances 100
Accounts Receivable – Polo Company 100

When a business receives returned merchandise previously

When a business sells merchandise to a customer on credit,
sold to a customer on credit, Sales Returns and Allowances
Accounts Receivable is debited and Sales is credited.
is debited and Accounts Receivable is credited.
RECOGNIZING ACCOUNTS
RECEIVABLE

882
18
900

When a business collects cash from a customer for

When a business
merchandise previously
sells merchandise
sold on credit
to during
a customer
the discount
on credit,
Accounts
period, Cash
Receivable
and Salesis Discounts
debited andare
Sales
debited
is credited.
and Accounts
Receivable is credited.
 STUDY
STUDY OBJECTIVE
OBJECTIVE 33

................................

3 Distinguish between the methods and

issues used to value accounts
receivable.
 VALUING ACCOUNTS
RECEIVABLE
 To ensure that receivables are not overstated on the
balance sheet, they are stated at their cash realizable
value.
 Cash (net) realizable value is the net amount expected to
be received in cash and excludes amounts that the
company estimates it will not be able to collect.
 Credit losses are debited to Bad Debts
Expense and are considered a normal and
necessary risk of doing business.
 Two methods of accounting for uncollectible
accounts are:
1 Direct write-off method 2 Allowance method
 DIRECT WRITE-OFF METHOD
 Under the direct write-off method, bad debt losses
are not anticipated and no allowance account is
used.
 No entries are made for bad debts until an account is
determined to be uncollectible at which time the loss
is charged to Bad Debts Expense.
 No attempt is made to match bad debts to sales
revenues or to show cash realizable value of accounts
receivable on the balance sheet.
 Consequently, unless bad debt losses are
insignificant, this method is not acceptable for
financial reporting purposes.
 DIRECT WRITE-OFF METHOD

General Journal
Date Account Titles Debit Credit
Dec. 12 Bad Debts Expense 200
Accounts Receivable – M.E. Doran 200

Warden Co. writes off M. E. Doran’s $200 balance as

uncollectible on December 12. When this method is used,
Bad Debts Expense will show only actual losses from
uncollectibles.
THE ALLOWANCE METHOD

The allowance method is required

when bad debts are deemed to be
material in amount.
Uncollectible accounts are
estimated and the expense for the
uncollectible accounts is matched
against sales in the same accounting
period in which the sales occurred.
 THE ALLOWANCE METHOD

General Journal
Date Account Titles Debit Credit
Dec. 31 Bad Debts Expense 12,000
Allowance for Doubtful Accounts 12,000

Estimated uncollectibles are debited to Bad

Debts Expense and credited to Allowance
for Doubtful Accounts at the end of each
period.
 THE ALLOWANCE METHOD

General Journal
Date Account Titles Debit Credit
Mar. 1 Allowance for Doubtful Accounts 500
Accounts Receivable - R. A. Ware 500

Actual uncollectibles are debited to Allowance for Doubtful

Accounts and credited to Accounts Receivable at the time
the specific account is written off.
 THE ALLOWANCE METHOD

General Journal
Date Account Titles Debit Credit
July 1 Accounts Receivable – R. A. Ware 500
Allowance for Doubtful Accounts 500

When there is recovery of an account that has been written

off: 1 reverse the entry made to write off the account and...
 THE ALLOWANCE METHOD

General Journal
Date Account Titles Debit Credit
July 1 Cash 500
Accounts Receivable 500

2 Record the collection in the usual manner.

At December 31, 2011, Kardashian Company had a
balance of $15,000 in Allowance for Doubtful
Accounts. During 2012, Kardashian wrote off accounts
totaling $13,000. One of those accounts ($1,800) was
later collected. At December 31, 2012, an aging
schedule indicated that the balance in Allowance for
Doubtful Accounts should be $19,000.
Instructions
Prepare journal entries to record the 2012 transactions
of Kardashian Company
On December 31, 2012, Dita Co. estimated that 2% of
its net sales of $400,000 will become uncollectible. The
company recorded this amount as an addition to
Allowance for Doubtful Accounts. On May 11, 2013,
Dita Co. determined that the Alex Lundquist account
was uncollectible and wrote off $1,100. On June 12,
2013, Lundquist paid the amount previously written off.
Instructions
Prepare the journal entries on December 31, 2012, May
11, 2013, and June 12, 2013.