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1、Accounts Receivable,Result from the credit sales of goods or services to customers.,Are classified as current assets.,Are recorded net of trade discounts.,To give quantity discounts to large customers,Net of trade discounts,a manufacturer might list a machine part at$2,500 but sell it to a customer
2、a 10%discount.The trade discount of$250 is not recognized directly when recording the transaction.The discount is recognized indirectly by recording the sale at the net of discount price of$2,250,not at the list price.,Trade discount is recognized indirectly,why?How to recognize in the company accou
3、nt book?,Cash discounts,Cash Discounts,2/10,n/30,Cash Discounts,Opportunity cost for Cash discount,If interest rate of loan is 18%,a certain company provides credit policy is 2/10,n/30,this credit policy is useful,or not?Why?Work in group(10 minutes for discussion),Cash Discounts,Sales are recorded
4、at the invoice amounts.,Sales discounts are recorded as reduction of revenue if payment is received within the discount period.,Gross Method,Sales are recorded at the invoice amount less the discount.,Sales discounts forfeited are recordedas interest revenue if payment is received after the discount
5、 period.,Net Method,Sales Discounts,Alternative Methods of Accounting for Sales Discounts,Gross Price Method,Net Price Method,Sold$7,000 of merchandise to various customers on December 4,2009 with terms of 2/10,n/30,Accounts Receivable 7,000Sales7,000,Accounts Receivable 6,860Sales6,860,Sales Discou
6、nts,Alternative Methods of Accounting for Sales Discounts,Gross Price Method,Net Price Method,On December 13 received payment on goods at$5,500.,Cash 5,390Sales Discount110Accts.Receivable5,500,Cash5,390Accts.Receivable5,390,Sales Discounts,Alternative Methods of Accounting for Sales Discounts,Gross
7、 Price Method,Net Price Method,Received payment on goods at$1,500 on December 30,Cash 1,500Accts.Receivable1,500,Cash1,500Accts.Receivable1,470Interest revenues 30,Cash Discounts,On October 5,Hawthorne sold merchandise for$20,000 with terms 2/10,n/30.On October 14,the customer sent a check for$13,72
8、0 taking advantage of the discount to settle$14,000 of the amount.On November 4,the customer paid the remaining$6,000.,Exercise,P85 E 2-4,Tracy Company,a manufacturer of air conditioners,sold 100 units to Thomas Company on November 17,2011.The units have a list price of$600 each,but Thomas was given
9、 a 30%trade discount.The terms of the sale were 2/10,n/30.Required:1.Prepare the journal entries to record the sale on November 17(ignore cost of goods)and collection on November 26,2011,gross method 2.Prepare the journal entries to record the sale on November 17(ignore cost of goods)and collection
10、on December 15,2011,gross method 3.Repeat requirements 1 and 2,net method.,Answer 2,Requirement 1Sales price=100 units x$600=$60,000 x 70%=$42,000November 17,2011Accounts receivable42,000Sales revenue 42,000November 26,2011Cash(98%x$42,000)41,160Sales discounts(2%x$42,000)840Accounts receivable42,00
11、0,Requirement 2November 17,2011Accounts receivable42,000Sales revenue42,000December 15,2011Cash42,000Accounts receivable42,000,Requirement 3Requirement 1,using the net method:November 17,2011Accounts receivable41,160Sales revenue(98%x$42,000)41,160November 26,2011Cash41,160Accounts receivable41,160,
12、Requirement 2,using the net method:November 17,2011Accounts receivable41,160Sales revenue(98%x$42,000)41,160December 15,2011Cash42,000Accounts receivable41,160Interest revenue 840,The net method,the net method reflects the reality of the situation-the real price is$41,160 and$840 is an interest for
13、not paying timely.customer should accept cash discount,for the interest is high,not 2%,but($2/$98)*365/20=37.23%effective rate Certainly,the customer could consider the investment profit for these 20 days.,The gross or net method,Which is correct?About income statement-no effect!Gross Method Net Met
14、hodSales$20,000$19,600Less:Sales discounts(280)0Net sales revenue 19,720 19,600Interest revenue 0 120Total revenue$19,720$19,720,About conceptsThe difference is the timing of the recognition of any discounts.the gross method is used by most companies,because it doesnt require adjusting entries for d
15、iscounts not taken.,Subsequent Valuation of Accounts Receivable 后续计量,three situations could cause the cash collected to be less than the initial valuation of the account receivables:(1)cash discount(2)sale return(3)some account receivables cant be collected,Merchandise may be returned by a customer
16、to a supplier.,A special price reduction,called an allowance,may be given as an incentive to keep the merchandise.,Sales Returns,Overstate or understate,Suppose merchandise is sold for$10,000 in December 2011,the merchandise cost$6,000.If all of the merchandise is returned in 2012.,gross profit will
17、 be overstated in 2011 and understated in 2012 by$4,000.Assets at the end of 2011 also will be overstated by$4,000 because a$10,000 receivable would be recorded instead of$6,000 in inventory.,To avoid misstating the financial statements,sales revenue and accounts receivable should be reduced by the
18、amount of returns in the period of sale if the amount of returns is anticipated to be material.,estimated returns by debiting a sales returns account(which is a contra account to sales revenue)and crediting an allowance for sales returns account(which is a contra account to accounts receivable),Sale
19、s Returns,During the first year of operations,Hawthorne sold$2,000,000 of merchandise that had cost them$1,200,000(60%).experience indicates 10%return.During the year$130,000 was returned prior to customer payment.Record the returns and the end of the year adjustment.,Actual ReturnsSales returns130,
20、000Accounts receivable 130,000Inventory 78,000Cost of goods sold(60%)78,000Adjusting EntriesSales returns 70,000Allowance for sales returns 70,000Inventory-estimated returns 42,000Cost of goods sold(60%)42,000If the estimates are correct in the future:Allowance for sales returns 70,000 Accounts rece
21、ivable 70,000,Keywords 2,Allowance method 备抵法Direct write-off method 直接冲销法Bad debts expense 坏账损失Allowance for uncollectible account 坏账准备Percentage of credit sales 销售额百分比法Percentage of accounts receivable 应收账款余额百分比法Aging of accounts receivable 账龄法Desired balance 期望的余额,Uncollectible Accounts Receivabl
22、e,Bad debts result from credit customers who are unable to pay the amount they owe,regardless of continuing collection efforts.,Bad debts expense is an inherent cost of providing credit.Its an operating expense incurred to make sales.提供信贷的固有成本,为提高销售额而发生的营业费用.,Uncollectible Accounts Receivable,Most b
23、usinesses record an estimate of the bad debt expense by an adjusting entry at the end of the accounting period.,Bad debt expensexxxAllowance for uncollectible accounts xxx,Allowance for Uncollectible Accounts,Net realizable value is the amount of the accounts receivable that the business expects to
24、collect.,Accounts ReceivableLess:Allowance for Uncollectible AccountsNet Realizable Value,1.Relationship to sales(income statement approach):a.Percentage of sales2.Relationship to accounts receivable(balance sheet approach):a.Percentage of accounts receivableb.Aging of accounts receivable,Estimated
25、Bad Debts Method,Income Statement Approach,Focuses on past credit sales to make estimate of bad debt expense.Emphasizes the matching principle by estimating the bad debt expense associated with the current periods credit sales.,Bad debt expense is computed as follows:,In 2012,MusicLand has credit sa
26、les of$400,000 and estimates that 0.6%of credit sales are uncollectible.What is Bad Debt Expense for 2012?,Income Statement Approach,MusicLand computes estimated Bad Debt Expense of$2,400.,Bad debt expense2,400Allowance for uncollectible accounts 2,400,Balance Sheet Approach,Focuses on the collectab
27、ility of accounts receivable to make the estimate of uncollectible accounts.Involves the direct computation of the desired balance in the allowance for uncollectible accounts.,Compute the desired balance in the Allowance for Uncollectible Accounts.Bad Debt Expense is computed as:,On Dec.31,2012,Musi
28、cLand has$50,000 in Accounts Receivable and a$200 credit balance in Allowance for Uncollectible Accounts.Past experience suggests that 5%of receivables are uncollectible.What is MusicLands Bad Debt Expense for 2012?,Balance Sheet ApproachComposite Rate,Desired balance in Allowancefor Uncollectible A
29、ccounts,Balance Sheet ApproachComposite Rate,Bad debt expense2,300Allowance for uncollectible accounts 2,300,Year-end Accounts Receivable is broken down into age classifications.,Each age grouping has a different likelihood of being uncollectible.,Compute desired balance.,Balance Sheet Approach Agin
30、g of Receivables,Use desired balance less the existing balance in theallowance account.,At December 31,2012,the receivables for EastCo,Inc.were categorized as follows:,Balance Sheet Approach Aging of Receivables,Balance Sheet Approach Aging of Receivables,EastCos existing balance in the allowance ac
31、count is$500.the desired balance is$1,350.,Bad debt expense 850Allowance for uncollectible accounts 850,Uncollectible Accounts,As accounts become uncollectible,write-off this count:,When a customer makes a payment after an account has been written off,two journal entries are required.,Allowance for
32、uncollectible accounts 500Accounts receivable 500,Accounts receivable 500Allowance for uncollectible accounts 500Cash500 Accounts receivable 500,Bad debts are simply recorded as they occur(without the use of an allowance account).,Direct Write-off Method,Bad debts expense xxxAccounts receivable xxx,
33、Example 4,The following information relates to a companys accounts receivable(AR):AR balance at the beginning of the year,$300,000;allowance for uncollectible accounts at the beginning of the year,$25,000(credit balance);credit sales during the year,$1,500,000;AR written off during the year,$16,000;
34、cash collections from customers,$1,450,000.Suppose the company estimates bad debts is equal to 2%of credit sales,calculate:(1)bad debt expense for the year(2)the year-end balance in the allowance for uncollectible accounts.(3)if bad debts will equal 10%of the year-end balance in accounts receivable?
35、,Answer 1,Bad debt expense=$1,500,000 x 2%=$30,000(2)Allowance for uncollectible accounts:Beginning balance$25,000 Add:Bad debt expense30,000 Deduct:Write-offs(16,000)Ending balance$39,000,Answer 2,(1)Allowance for uncollectible accounts:Beginning balance$25,000 Deduct:Write-offs(16,000)desired bala
36、nce(33,400)*Bad debt expense$24,400(2)desired balance=$334,000*x 10%=$33,400*Accounts receivable:Beginning balance$300,000 Add:Credit sales1,500,000 Deduct:Cash collections(1,450,000)Write-offs(16,000)Ending balance$334,000*,Exercise,P86 E 2-7 2-9,Keywords 3,Interest-Bearing Notes 带息票据Noninterest-Be
37、aring Notes 不带息票据Face amount(face value)票面价值Maturity value 到期价值Financial institutions 金融机构secured borrowing 质押取得借款Pledge 质押mortgage 抵押Collateral 担保物,Keywords 3,sale of receivables 应收债权出售Factoring 应收账款销售Securitization 证券化Discounting 贴现Recourse 追索权with recourse 附追索权without recourse 不附追索权Assigning(法律)把
38、财产、利息等从一人转入另一人 Transferor 让与人，出让人Transferee 受让人,Financing With Receivables应收债权融资和出售,Companies may use their receivables to obtain immediate cash through financial institutions.,Sale of Receivables,Secured Borrowing,Reasons:shortens cash in operating cycles;avoid the difficulties of collecting receiv
39、ables.Ways:,Secured Borrowing,The company pledge receivables to borrow money.the financial institution lent the amount of money is less than the amount of receivables.The difference provides some protection for possible uncollectible accounts.Also,the financial institution charges the borrower finan
40、ce charge in addition to interest on the loan.,Secured Borrowing,On December 1,2011,the Santa Teresa Glass Company 从银行借款$500,000,年利率为12%,按月支付.The company 以$620,000 的应收账款作为贷款担保,银行按抵押账款的1.5%收取费用.Teresa Glass records the borrowing as follows:Cash 490,700Finance charge expense*(1.5%$620,000)9,300 Liabil
41、ity-financing arrangement.500,00期间,公司的收账、现金折扣、销售退回、坏账冲销等业务照常记录。公司也将向银行还款。12月，该公司收回$400,000的应收账款。Santa Teresa Glass records the following entries:Cash 400,000 Accounts receivable 400,000interest expense($500,000*12%*1/12)5,000 liability-financing arrangement 400,000 Cash 405,000,Sale of Receivables,T
42、reat as a sale if all of these conditions are met:receivables are removed from transferor.transferee has right to deal with receivables.transferor does not have control over the receivables.If the transaction fails to meet the three conditions necessary to be classified as a sale,it will be treated
43、as a secured borrowing.,Sale of Receivables,Two popular arrangements used for the sale of receivables are factoring and securitization.,Factoring Arrangements,Factor(银行等金融机构),Supplier(Transferor),Retailer,A factor is a financial institution that buys receivablesfor cash,handles the billing and colle
44、ction of thereceivables and charges a fee for the service.,Factoring,the factor only gave the transferor between 65%-90%of the receivables.The remained balance is retained as security until all of the receivables are collected,then gave the transferor the net of the financing fee.The fee charged by
45、this factor ranges from 3%-6%.,Securitization,the company creates a special purpose entity(SPE),usually a trust or a subsidiary.The SPE buys a pool of trade receivables,credit card receivables,or loans from the company,and then sells related securities,such as bonds or commercial paper,that are coll
46、ateralized by the receivables.,Sale of Receivables,Without recourseAn ordinary sale of receivables to the factor.all risk of uncollectibility passes to the factor.Control of receivable passes to the factor.,With recourseTransferor(seller)retains risk of uncollectibility.the seller guarantees that th
47、e buyer will be paid even if some receivables prove to be uncollectible.,Sale of Receivables,In December 2011,the Company 将价值$600,000的应收账款出售给 Factor Bank,此为不附追索权的应收债权出售.Factor bank 支付了账面价值的90%(90%$600,000=$540,000),保留的 10%包含4%的费用和垫支在收款中可能发生的sales returns and allowances.当Factor Bank 收回货款后,再支付剩余的部分,估计
48、这10%的债权的公允价值为$50,000.,如果是附追索权的应收债权出售,追偿金额为$5,000.,If the factor collects all of the receivables,eliminates the recourse liability and increases income,U.S.GAAP vs.IFRS,U.S.GAAP focuses on whether control of assets has shifted from the transferor to the transferee.,The U.S.GAAP and the IFRS approache
49、s often lead to similar accounting treatment for transfers of receivables.,IFRS requires a more complex decision process.The company has to have transferred the rights to receive the cash flows from the receivable,and then considers whether the company has transferred“substantially all of the risks
50、and rewards of ownership,”as well as whether the company has transferred control.,Example,H.L Cor.plans to transfer$300,000 of accounts receivable to M.Cor.in exchange for cash.H.L retain all the risks and rewards of ownership but shift control over the receivables to M.Assuming all other criteria a
