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Receivables

Receivables. Notes Receivable and Interest Revenue. Receivables. Premise :. Receivables. Premise : When you extend credit to customers…. Receivables. Premise : When you extend credit to customers… you know some customers won’t pay. Receivables. Premise :

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Receivables

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  1. Receivables Notes Receivable and Interest Revenue

  2. Receivables Premise:

  3. Receivables Premise: When you extend credit to customers…

  4. Receivables Premise: When you extend credit to customers… you know some customers won’t pay.

  5. Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions:

  6. Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I. Notes Receivable and Interest

  7. Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I. Notes Receivable and Interest II. Uncollectible Accounts

  8. Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I. Notes Receivable and Interest II. Uncollectible Accounts Lecture

  9. Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I. Notes Receivable and Interest II. Uncollectible Accounts Today

  10. Why Notes instead of Accounts Receivable? • charge (earn) interest • stronger legal claim • more liquid -- may be converted to cash • selling A/R called “factoring” • selling Notes Receivable called “discounting”

  11. Calculating Interest P x R x T • rate is an annual rate • time expressed as a portion of year • government uses 365 • many banks use 360 • use 360 in homework / class

  12. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. =???

  13. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = ??? $844. = $8.44

  14. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = $8.44 You try . . .

  15. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = $8.44 You try . . . 6% for 30 days =

  16. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = $8.44 You try . . . 6% for 30 days = $4.22

  17. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = $8.44 You try . . . 6% for 30 days = $4.22 12% for 60 days =

  18. Short-cut “6% - 60 day” Method $844. x 6% x 60 / 360 = ??? $844. = $8.44 You try . . . 6% for 30 days = $4.22 12% for 60 days = $16.88

  19. Determining the (Exact) Due Date • Learn the number of days in each month • poem method • knuckle method • counting days if term of note • stated in days • stated in months

  20. Example of Counting Days A 60-day note dated August 17 is due ________ . 31 - 17 14 + 30 44 + ?? 60 The note is due October 16.

  21. Due Date When Stated in Months RULE: “same day of the month”

  22. Examples of Counting Months A two-month note dated August 17 is due ______ . October 17

  23. Due Date When Stated in Months RULE: “same day of the month” EXCEPTION: how to deal with EOM “last day of month”

  24. Examples of Counting Months A two-month note dated August 17 is due ______ . October 17 A three-month note dated Nov. 30 is due ______ . February 28 A three-month note dated April 30 is due ______ . July 30

  25. Date Account Title Ref Debit Credit 16 Accounts Receivable - BR 4,000 Sales 4,000 Exercise E9-10 page 411 8/16 Sold merchandise to Bob Reber on account, $4,000. Should also record reduction in inventory.

  26. Exercise E9-10 page 411 11/1 Loaned $15,000 cash to Sally Givens on a 1-year, 10% note. Date Account Title Ref Debit Credit 1 Notes Receivable 15,000 Cash 15,000 What about the interest?

  27. interest What about the discount? Ever been lost ... … at DisneyWorld? … in a hospital? … in an office building? Interest 11/1 10/31 You are here!

  28. Exercise E9-10 page 411 12/11 Sold goods to John Countryman, Inc., receiving a $6,750, 90-day, 8% note. Date Account Title Ref Debit Credit 1 Notes Receivable 6,750 Sales 6,750 Should also record reduction in inventory.

  29. Rememberthisassumption? Exercise E9-10 page 411 8/16 Sold merchandise to Bob Reber on account, $4,000. Date Account Title Ref Debit Credit 16 Accounts Receivable - BR 4,000 Sales 4,000 12/16 Received a $4,000, 6-month, 12% note on account from Prentice Berge. Date Account Title Ref Debit Credit 16 Notes Receivable 4,000 Accounts Receivable - PB 4,000

  30. Exercise E9-10 page 411 8/16 Sold merchandise to Bob Reber on account, $4,000. Date Account Title Ref Debit Credit 16 Accounts Receivable - BR 4,000 Sales 4,000 12/16 Received a $4,000, 6-month, 9% note on account from Bob Reber. Date Account Title Ref Debit Credit 16 Notes Receivable 4,000 Accounts Receivable - PB 4,000

  31. Exercise E9-10 page 411 8/16 Sold merchandise to Bob Reber on account, $4,000. Date Account Title Ref Debit Credit 16 Accounts Receivable – BR 4,000 Sales 4,000 12/16 Received a $4,000, 6-month, 9% note on account from Bob Reber. Date Account Title Ref Debit Credit 16 Notes Receivable 4,000 Accounts Receivable - BR 4,000

  32. earned earned Exercise E9-10 page 411 12/31 Accrued interest revenue on all notes receivable. Date Account Title Ref Debit Credit 31 Interest Receivable Interest Revenue How much?

  33. 11/1 12/11 12/16 Accrued Interest $15,000, one year, 10% $6,750, 90 days, 8% $4,000, 6 months, 9%

  34. 11/1 12/11 12/16 Accrued Interest 12/31

  35. 11/1 $15,000 x 10% x ?? 12/11 12/16 $15,000 x 10% x ?? Accrued Interest 12/31

  36. 11/1 12/11 12/16 Accrued Interest 2 / 12 12/31 2 / 12

  37. 11/1 12/11 12/16 Accrued Interest 2 / 12 12/31 $15,000 x 10% x 2/12

  38. 11/1 12/11 12/16 Accrued Interest $6,750 x 8% x ?? 12/31 $6,750 x 8% x ??

  39. 11/1 12/11 12/16 Accrued Interest 31 - 11 = 20 12/31 31 - 11 = 20

  40. 11/1 12/11 12/16 Accrued Interest 31 - 11 = 20 12/31 $6,750 x 8% x 20/360

  41. 11/1 12/11 12/16 Accrued Interest $4,000 x 9% x ?? 12/31 $4,000 x 9% x ??

  42. 11/1 12/11 12/16 Accrued Interest ½ month 12/31 ½ month

  43. 11/1 12/11 12/16 Accrued Interest $4,000 x 9% x ?? 12/31 $4,000 x 9% x .5/12

  44. Now make your calculations!

  45. Interest Calculations

  46. Interest Calculations

  47. Interest Calculations

  48. Interest Calculations

  49. earned earned Exercise E9-8 page 388 12/31 Accrued interest revenue on all notes receivable. Date Account Title Ref Debit Credit 31 Interest Receivable Interest Revenue How much?

  50. Exercise E9-8 page 388 12/31 Accrued interest revenue on all notes receivable. Date Account Title Ref Debit Credit 31 Interest Receivable $295 $295 Interest Revenue $295

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