TAILIEUCHUNG - Lecture Fundamental financial accounting concepts (8/e): Chapter 7 - Edmonds, McNair, Olds

Chapter 7 - Accounting for receivables. This chapter examines how companies account for accounts receivables and uncollectible accounts receivable, as well as introduces notes receivable and accounting for accrued interest. | Accounting for Receivables Chapter Seven McGraw-Hill/Irwin McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. This chapter examines how companies account for accounts receivables and uncollectible accounts receivable, as well as introduces notes receivable and accounting for accrued interest. Accounts Receivable and Notes Receivable When a company allows customers to “buy now and pay later,” the company’s right to collect cash in the future is called accounts receivable. Individually, these receivables are typically small and are payable within 30 days. When a longer credit term is needed, or when the receivable is large, the company usually requires the customer to issue a note that specifies interest and other credit terms. The company then records a note receivable. 7- Part I: When a company allows customers to “buy now and pay later,” the company’s right to collect cash in the future is called accounts receivable. Individually, these receivables are typically small and are payable within thirty days. Part II: When a longer credit term is needed, or when the receivable is large, the company usually requires the customer to issue a note that specifies interest and other credit terms. The company then records a note receivable. Credit Terms and Bad Debts Some customers may be unwilling or unable to pay their accounts receivable. Because we do not want to overstate assets, we must show accounts receivable at its net realizable value on the balance sheet. The net realizable value is the gross amount of the receivables less some estimated allowance for doubtful accounts. Multiplying the service revenue by the percentage estimate of uncollectible accounts is commonly called the percent of revenue method of estimating uncollectible accounts expense. 7- Whenever a company extends credit on the sale of merchandise or provides a service, there is the possibility that the customer may not be able to pay the amount

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