Accounts Receivable

1. Accounts Receivable Unit Seven

2. Learning Objectives Unit Seven • to describe the common classification of receivables; • to understand the importance of accounts receivables; • to understand the nature and the accounting for uncollectibles; • to write off an uncollectible account receivable; • to make allowance for doubtful accounts; • to account for uncollectible receivables by the allowance method or by the direct write-off method.

3. Warming-upUnit Seven If you have purchased an automobile on credit, you probably signed a note. From your viewpoint, the note is note payable. From the creditor’s viewpoint, the note is note receivable. Many companies sell on credit in order to sell more services or products. The receivables that result from such sales are normally classify as accounts receivables or notes receivables. The term receivables includes all money claims against other entities, including people, business firms and other organizations.

4. Text Skimming • Ask students to read the text quickly and ask them some questions. • Define accounts receivable. • What are bad debts? • Explain how the direct write-off method works and why it may violate the matching principle.

5. What is the principal shortcoming of the direct write-off method? • What is the allowance method? • There are two basic methods for estimated uncollectible accounts for a period. What are they?

6. classification merchandise grant definite installment privilege liquid assets investigate inevitably cautious write-off method allowance method bad debts 分类 商品 授予，承认，允许 明确的 分期付款 特权，优惠 流动资产 调查 不可避免地 谨慎的 直接注销法 备抵法 坏帐 Vocabulary Unit Seven

7. Receivables • The term “ receivables” includes all money claims against other entities, including people, business firms, and other organizations.

8. Presentation • Classification of Receivables • Accounts Receivable • Notes Receivable • Other Receivables

9. When does the receivable arise? The business sells goods or services on credit.

10. Accounts Receivable • Account receivable are normally to be collected within a relatively short period, such as 30 or 60 days, and are classified on the balance sheet as a current asset.

11. Notes Receivable • A business may grant credit to customers on the basis of a formal instrument of credit, called ,often simply called a note. It is written promise to pay a sum of money on demand or at a definite time. Notes are often used for credit periods of more than sixty days, such as an installment plan for equipment sales. a promissory note 期票 书面承诺

12. Other Receivables • interest receivable • taxes receivable • receivables from officers or employees

13. Accounts Receivable • Accounts receivable are relatively liquid assets, usually converted into cash within a period of 30 to 60 days. • Accounts receivable are shown in the balance sheet at the estimated collectible amount--- called net realizable value. 变现净值

14. Uncollectible Receivables When does an account or a note become uncollectible?

15. 1. A debtor fails to pay an account according to a sales contract. 2. A debtor dishonors a note on the due date. 3. Bankruptcy of the debtor 4. The closing of the customer’s business and the failure of repeated attempts to collect.

16. There are two major methods for recording uncollectible accounts : the direct write-off method the allowance method It recognizes the expense only when certain accounts are judged to be worthless.

17. the allowance method An estimate is made of the expected uncollectible accounts from all sales made on account or from the total of outstanding receivables. This estimate is entered as an expense and a reduction in accounts receivable in the period in which the sale is recorded. This is usually called the “allowance method”. It provides an expense for uncollectible receivables in advance of their write-off.

18. When should the accountants use the direct write-off method?

19. 1. If the company makes most of its sales for cash, the amount of its accounts receivable will be small in relation to other assets. So the expense from uncollectible accounts should also be small. 2. If a company sells most off its output to a few large companies which are financially strong, there will be little expense from failure to collect its accounts.

20. the major shortcoming of the direct write-off method In addition, the use of this method will also result in overstating accounts receivable on the balance sheet. credit losses are not matched with related revenue

21. The allowance method • An estimate is made of the expected uncollectible accounts from all sales made on account or from the total of outstanding receivables. This estimate is entered as an expense and a reduction in accounts receivable in the period in which the sale is recorded. This is usually called the “allowance method”.

22. the allowance for doubtful accounts contra-asset account or valuation account

23. There are two basic methods for estimated uncollectible accounts for a period. percentage-of-sales method percentage-of-receivables method

24. percentage-of-sales method It focuses attention on the income statement and the relationship of uncollectible accounts to sales.

25. percentage-of-receivables It focuses attention on the balance sheet and the relationship of allowance for uncollectible accounts to accounts receivable.

26. When the percentage-of-receivables method is calculated by using different rate for each age category of receivables, an aging method is used. All these three methods are acceptable.

27. Notes Unit Seven • The Direct Write-off Method 直接转销法 有些公司不用任何应收账款的备抵法。这些公司不是在期末时根据估计编制调整分录确认坏账损失，而是直至特定应收款项确定没有价值时才确认坏账损失。这种方法无意将收入与不可收回的损失配比。损失记录为贷应收账款，借坏账费用或坏账损失。这种方法叫做应收账款“直接转销法”。在直接转销法下，坏账只有在确定无发收回时才被计入当期费用。 • allowance method 备抵法 按照赊销收入或未偿付应收账款总额对可能无法收回款项做出估计。在销售确认当期作为费用加以记录并抵减应收账款该方法通常被称作备抵法。

28. Notes Unit Seven • The percentage-of-receivables method estimates uncollectible accounts by determining the desired size of the allowance for uncollectible accounts. The ending balance in Account Receivable is multiplied by a rate based on past experience regarding uncollectible accounts. 应收账款余额百分比法是按照确定的坏账准备计提比例预估坏账。应收账款期末余额与根据以往经验确定的坏账率的乘积。 • The process of analyzing receivable accounts according to their age is sometimes called aging account receivable. 分析应收账款收账期限的方法有时也称账龄分析法。

29. Accounts Receivable Unit Seven

30. Review • 1. Ask students to read all the new words and phrases. • 2. Review the language points.

31. ExercisesUnit Seven II. Complete the following sentences with the appropriate phrases. Adjusting entry direct write-off allowance Bad debts account receivable estimated 1. _______________ are amounts the customers owed to a company for credit sales. 2. ________ are uncollectible accounts and recognized as a selling expense. 3. Under the ____________ method, the uncollectible account can be _________ on the basis of the percentage of credit sales or the ending balance of the Account Receivable account. Accounts receivable Bad debts allowance estimated

32. ExercisesUnit Seven direct write- off 4. The ___________ method requires that Accounts Receivable should not be written off until they are determined uncollectible. 5. Estimation of bad expense is made by making an _________________ at the end of an accounting period. adjusting entry

33. ExercisesUnit Seven III. Decide whether the following statements are true or false. Write T for true and F for false. ( ) 1. Account Receivable is classified as a current asset. ( ) 2. The entry providing for uncollectible accounts is an adjusting entry, but the entry writing for uncollectible account may be made at any time when an account proves to be uncollectible. ( ) 3. When an outstanding account receivable is written off, an entry is typically made by debiting Allowance for Uncollectible Accounts and crediting Account Receivable for the amount written off. T T T

34. ExercisesUnit Seven ( ) 4. The Allowance for Uncollectible Accounts is a liability because it usually has a net credit ending balance. ( ) 5. Recoveries of an account previously written off are, when an Allowance for Uncollectible Accounts account is used, credited to the Bad Debts account. F F

35. ExercisesUnit Seven V. Translate the following passage into Chinese. Usually as an account receivable gets older there is an increase in the probability that the account will be uncollectible. An aging analysis of the individual accounts receivable balance is done to estimate on the basis of experience the specific bad debt loss rates for each age group. The amount estimated to be uncollectible under the aging method is the balance that should be in the account “Allowance for Doubtful Accounts” at the end of the period. The difference between the actual balance in that account and the estimated balance is the amount recorded as bad debt expense in the adjusting entry at the end of the period. Therefore, an analysis of the age of accounts receivable provides management with valuable information concerning the probable losses due to uncollectible accounts. key

36. ExercisesUnit Seven 通常随着应收账款账龄的不断增加，其无法收回的可能性也在增加。应收账款账龄分析法是在各明细账户余额的基础上根据经验预估不同账龄组的坏账损失率。在账龄分析法下预计无法收回的金额应为期末时“坏账准备”账户的余额。该账户实际余额与预估余额之间的差额应于期末时在调整分录中确认为坏账费用。因此，对应收账款的账龄分析为管理者提供了由于账款无法收回而导致的可能的损失的有价值的信息。 back

37. Assignments • Do Ex. Ⅵ in the exercise books.