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Receivables

Learn essential tips and methods for managing receivables and notes receivable effectively to ensure timely payments and maximize revenue. Understand interest calculations and due date determinations. Get practical examples and exercises for better financial management.

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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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