of credit sales, total sales can be used. Dec. 31 Bad Debts Expense 2.400

Transcription

1 Chapter 9 Accounting for Receivables Musicland estimates 0.6% of credit sales to be uncollectible. This implies that Musicland Point: Focus is on credit sales because expects $2,400 of bad debts expense from its sales (computed as $400,000 X 0.006). The cash adjusting entry to record this estimated expense is cash sales are a smal or stable percent sales do not produce bad debts If of credit sales, total sales can be used. Dec. 31 Bad Debts Expense Assets Liabilities H Equity Alowancefor Doubtful Accounts. 1, To record estimated bad debts. The allowance account ending balance on the balance sheet for this method would rarely equal Point:When using the percent of sales the bad debts expense on the income statement. This is so because unless a company is in method its for estimating uncolectibles. the first period of operations, its allowance account has a zero balance only if the prior amounts estimate of bad debts is the number written off as uncollectible exactly equal the prior estimated bad debts expenses. (When computing bad debts expense as a percent of sales, managers monitor and adjust the percent so it used in the adjusting entry is not too high or too low.) Estimating Bad Debts Percent of Receivables Method The accounts receivable methods, also referred to as balance sheet methods, use balance sheet relations to estimate bad debts mainly the relation between accounts receivable and the allowance amount. The goal of the bad debts adjusting entry for these methods is to make the Allowance for Doubtful Accounts balance equal to the portion of accounts receivable that is estimated to be uncollectible. The estimated balance for the allowance account is obtained in one of two ways: (1) computing the percent uncollectible from the total accounts receivable or (2) aging accounts receivable. The percent of accounts receivable method assumes that a given percent of a company's receivables is uncollectible. This percent is based on past experience and is impacted by current conditions such as economic trends and customer difficulties. The total dollar amount of all receivables is multiplied by this percent to get the estimated dollar amount of uncollectible Point:When usingan accounts accounts reported in the balance sheet as the Allowance for Doubtful Accounts. receivable method for estimating To illustrate, assume that Musicland has $50,000 of accounts receivable on December 31, uncolectibles. the alowance account Experience suggests 5% of its receivables are uncollectible. This means that after the balance is adjusted to equal the adjusting entry is posted, we want the Allowance for Doubtful Accounts to show a $2,500 credit estimate of uncolectibles balance (5% of $50,000). We are also told that its beginning balance is $2,200, which is 5% of the $44,000 accounts receivable Allowance on for December Doubtful 31, Accounts 2008 see Exhibit EXHIBIT 9.10 Dec. 31,2008, bal. 2,200 -«Prior year estimate Allowance for Doubtful Feb of alowance for Accounts after Bad Debts Curent year July doubtful accounts Adjusting Entry write-offs Nov Unadjusted bal. 200 Adjusting entry Dec. 31 adjustment 2,300 L -«r l Dec. 31,2009, bal. 2,500- Curent year estimate of alowance for doubtful accounts During 2009, accounts of customers are written off on February 6, July 10. and November 20. Thus, the account has a $200 credit balance before the December 31, adjustment. The adjusting entry to give the allowance account the estimated $2,500 balance is Dec. 31 Bad Debts Expense AlowanceforDoubtful Accounts. To record estimated bad debts Assets - Liabilities + Equ its

2 366 Chapter 9 Accounting for Receivables Decision Insight Aging Pains Experience shows that the longer a receivable is past due, the lower is the likelihood of its collection. An aging schedule uses this knowledge to estimate bad debts. The chart here is from a survey that reported estimates of bad debts for receivables grouped by how long they were past their due dates. Each company sets its own estimates based on its customers and its experiences with those customers' payment patterns. EXHIBIT 9.1 I Aging of Accounts Receivable EXHIBIT 9.12 Computation of the Required Adjustment for the Accounts Receivable Method Estimating Bad Debts Aging of Receivables Method The aging of accounts receivable method uses both past and current receivables information to estimate the allowance amount. Specifically, each receivable is classified by how long it is past its due date. Then estimates of uncollectible amounts are made assuming that the longer an amount is past due, the more likely it is to be uncollectible. Classifications are often based on 30-day periods. After the amounts are classified (or aged), experience is used to estimate the percent of each uncollectible class. These percents are applied to the amounts in each class and then totaled to get the estimated balance of the Allowance for Doubtful Accounts. This computation is performed by setting up a schedule such as Exhibit MUSICLAND SchedL byage leof Accounts Receivable December Not Yet 1 to to to 90 Over Customer Totals Due Days Days Da>s 90Days Carlie Abbot $ 450 $ 450 PastDue PastDue PastDue Pas!Due Jamie Alen 710 $ 710 Each receivable is grouped Chavez Andres $ 200 $ 710 byhow long It BatciaCompany 740 $ 100 $640 is past itsdue date Each age group is Zamora Services 1, Total receivables $50,000 $37,000 $6,500 $3,700 $1,900 $ 900 multipliedby its estimated bad debts percent Percent uncolectible x2% x5% x10% x25% x40% Estimated uncolectible. $ 2,270 Estimated bad debts for j $ 325-j $ 370-j $ 475-j $ 360T each group are totaled Exhibit 9.11 lists each customer's individual balances assigned to one offiveclasses based on its days past due. The amounts in each class are totaled and multiplied by the estimated percent of uncollectible accounts for each class. The percents used are regularly reviewed to reflect changes in the company and economy. To explain, Musicland has $3,700 in accounts receivable that are 31 to 60 days past due. Its management estimates 10% of the amounts in this age class are uncollectible, or a total of $370 (computed as $3,700 x 10%). Similar analysis is done for each of the other four classes. The final total of $2,270 ($740 + $ $475 + $360) shown in thefirstcolumn is the estimated balance for the Allowance for Doubtful Accounts. Exhibit 9.12 shows that since the allowance Unadjusted balance $ 200 credit Estimated balance credit Required adjustment $2,070 credit

3 Chapter 9 Accounting for Receivables account has an unadjusted credit balance of $200, the required adjustment to the Allowance for Doubtful Accounts is $2,070. This yields the following end-of-period adjusting entry. Dec. 31 Bad Debts Expense 2,070 Assets = Liabilities + Equity Alowancefor Doubtful Accounts 2, To record estimated bad debts. Alternatively, if the allowance account had an unadjusted debit balance of $500 (instead of the $200 credit balance), its required adjustment would be computed as follows. Adjusting entry amount Unadjusted balance $ 500 debit Estimated balance 2,270 credit - Required adjustment $ 2,770 credit Curent year estimate of alowance for doubtful accounts The entry to record the end-of-period adjustment for this alternative case is I»- Dec. 31 Bad Debts Expense 2,770 Assets = Liabilities + Equity Alowancefor Doubtful Accounts , v..., To record estimated bad debts. The aging of accounts receivable method is an examination of specific accounts and is usually the most reliable of the estimation methods. Estimating Bad Debts Summary of Methods Exhibit 9.13 summarizes the principles guiding all three estimation methods and their focus of analysis. Percent of sales, with its income statement focus, does a good job at matching bad debts expense with sales. The accounts receivable methods, with their balance sheet focus, do a better job at reporting accounts receivable at realizable value. EXHIBIT 9.13, Bad Debts Estimation Methods to Estimate Bad Debts 'I Income Statement Percent of Sales [Emphasis on Matching] Sales x Rate =Bad Debts Expense n r I Percent of Receivables I {Emphasis on < Realizable Value] Balance Sheet Focus Aging of Receivables I (Emphasis on Realizable Value] I T T Accounts ^ p a(e _ Alowance Accounts Alowance Receivable ~ for Doubtful Receivable *, = Accounts for Doubtful (by Age) (by A 9 e) Decision Maker mt^t^t^t^t^t^t^^m^o^omo^mmmattttttttttt^ i Labor Union Chief One week prior to labor contract negotiations, financial statements are released showing no income growth. A10% growth was predicted. Your analysis finds that the company increased its alowanceforuncollectibles from1.5% to 4.5% of receivables. Without this change, income would show a9% growth. Does this analysis impact negotiations? [Answer p. 376)

4 368 Chapter 9 Accounting for Receivables Quick Check 3. Why must bad debts expense be estimated if such an estimate is possible; 4. What term describes the balance sheet valuation of Accounts Receivable less the Alowance for Doubtful Accounts? S. Why is estimated bad debts expense credited to a contra account (Allowance for Doubtful Accounts) rather than to the Accounts Receivable account? 6. SnoBoard Company's year-end balance in its Alowance for Doubtful Accounts is a credit of $440. By aging accounts receivable, it estimates that $6,142 is uncollectible. Prepare SnoBoard's year-end adjusting entry for bad debts. 7. Record entries for these transactions assuming the alowance method is used: Jan. 10 The $300 account of customer Cool Jam is determined uncollectible. April 12 Cool Jam unexpectedly pays in full the account deemed uncollectible on Jan. 10. Notes Receivable C2 Describe a note receivable and the computation of its maturity date and interest. EXHIBIT 9.14 Promissory Note A promissory note is a written promise to pay a specified amount of money, usually with interest, either on demand or at a definite future date. Promissory notes are used in many transactions, including paying for products and services, and lending and borrowing money. Sellers sometimes ask for a note to replace an account receivable when a customer requests additional time to pay a past-due account. For legal reasons, sellers generally prefer to receive notes when the credit period is long and when the receivable is for a large amount. If a lawsuit is needed to collect from a customer, a note is the buyer's written acknowledgment of the debt, its amount, and its terms. Exhibit 9.14 shows a simple promissory note dated July 10, For this note, Julia Browne promises to pay TechCom or to its order (according to TechCom's instructions) a specified amount of money ($1,000), called the principal of a note, at a definite future date (October 8, 2009). As the one who signed the note and promised to pay it at maturity, Browne is the maker of the note. As the person to whom the note is payable. TechCom is the payee of the note. To Browne, the note is a liability called a note payable. To TechCom, the same note is an asset called a note receivable. This note bears interest at \29c. as written on the note. Interest is the charge for using the money until its due date. Principal To a borrower, interest is an expense. To a lender, Promissory it revenue. Note Amount:. $1,000 Date: Ju!y. 10 ' Date of note Due date.ninetyd?*?. after date! promise to pay to the order of TechCom Company Payee ^ Los Angeles, CA One thousand and no/100 Dollars for value received with interest at the annual rate of.1?.%. Interest rate payable at...^i^l^?!.^^?*!-^ Angeles,CA 1 Maker Computing Maturity and Interest This section describes key computations for notes including the determination of maturity date. period covered, and interest computation. Maturity Date and Period The maturitv date of a note is the day the note (principal and interest) must be repaid. The period of a note is the time from the note's (contract)

5 Chapter 9 Accounting for Receivables 369 date to its maturity date. Many notes mature in less than a full year, and the period they cover is often expressed in days. When the time of a note is expressed in days, its maturity date is the specified number of days after the note's date. As an example, a five-day note dated June 15 matures and is due on June 20. A 90-day note dated July 10 matures on October 8. This October 8 due date is computed as shown in Exhibit The period of a note is sometimes expressed in months or years. When months are used, the note matures and is payable in the month of its maturity on the same day of the month as its original date. A nine-month note dated July 10, for instance, is payable on April 10. The same analysis applies when years are used. Days in July 31 Minus the date of the note ]0 Days remaining in July 21 Add days in August 31 Add days in September 30 Days to equal 90 days, or maturity date of October 8 _8 Period of the note in days 90 1July <i-3i 1 Aug Sept.1-30 Oct.1-8 m Video9.l EXHIBIT 9.15 Maturity Date Computation Interest Computation Interest is the cost of borrowing money for the borrower or, alternatively, the profit from lending money for the lender. Unless otherwise stated, the rate of interest on a note is the rate charged for the use of the principal for one year. The formula for computing interest on a note is shown in Exhibit Principal Annual Time expressed _ EXHIBIT 9.16 of the note interest rate in years ~ Computation of Interest Formula n e r e s To simplify interest computations, a year is commonly treated as having 360 days (called the banker's rule in the business world and widely used in commercial transactions). We treat a year as having 360 days for interest computations in the examples and assignments. Using the promissory note in Exhibit 9.14 where we have a 90-day, 12%, $1,000 note, the total interest is computed as follows. 90 $1,000 X 12% X = $1,000 X 0.12 X 0.25 = $ Recognizing Notes Receivable Notes receivable are usually recorded in a single Notes Receivable account to simplify recordkeeping. The original notes are kept onfile,including information on the maker, rate of interest, note receivable. P3 Record the receipt of a and due date. (When a company holds a large number of notes, it sometimes sets up a controlling account and a subsidiary ledger for notes. This is similar to the handling of accounts receivable.) To illustrate the recording for the receipt of a note, we use the $1,000, 90-day. 12% promissory note in Exhibit TechCom received this note at the time of a product sale to Julia Browne. This transaction is recorded as follows. Jury 10* Notes Receivable 1,000 Assets = Liabilities + Equitv Sales 1,000 ^ ,000 SoW goods in exchange for a 90-day, 12% note. * We omit the entry to Dr. Cost of Sales and Cr. Merchandise Inventory to focus on sales and receivables. When a seller accepts a note from an overdue customer as a w ay to grant a time extension on a past-due account receivable, it will often collect part of the past-due balance in cash. This partial payment forces a concession from the customer, reduces the customer's debt (and Point: Notes receivable often ate 3 the seller's risk), and produces a note for a smaller amount. To illustrate, assume that TechCom ma or part of a company's assets agreed to accept $232 in cash along with a $600, 60-day. 15% note from Jo Cook to settle Likewise, notes payable often.ire a large part of 3 company's liabilities

6 370 Chapter 9 Accounting for Receivables Assets = Liabilities + Equity P4 Record the honoring and dishonoring of a note and adjustments for interest, Assets = Liabilities + Equity + 15 her $832 past -due account. TechCom made the following entry to record receipt of this cash and note. Oct 5 Cash 232 (00 Received cash and note to settle account Valuing and Settling Notes Recording an Honored Note The principal and interest of a note are due on its maturity date. The maker of the note usually honors the note and pays it in full. To illustrate, when J. Cook pays the note above on its due date, TechCom records it as follows. Dec. 4 Cash Notes Receivable Interest Revenue Colect note with interest of $600 x 15% x 60/360. Interest Revenue, also called Interest Earned, is reported on the income statement. Recording a Dishonored Note When a note's maker is unable or refuses to pay at maturity, the note is dishonored. The act of dishonoring a note does not relieve the maker of the obligation to pay. The payee should use every legitimate means to collect. How do companies report this event? The balance of the Notes Receivable account should include only those notes that have not matured. Thus, when a note is dishonored, we remove the Point:When posting a dishonored amount of this note from the Notes Receivable account and charge it back to an account note to a customers account,an explanation is included so as not to misinter Hart. At maturity, Hart dishonors the note. TechCom records this dishonoring of the note receivable from its maker. To illustrate, TechCom holds an $800, 12%, 60-day note of Greg pret the debit as a sale on account. as follows. 816 Assets = Liabilities + Equity Oct14 Accounts Receivable G. Hart Interest Revenue Notes Receivable > "id and interest of $800 X12% X 60/360. Point: Reporting the details of notes Charging a dishonored note back to the account of its maker serves two purposes. First, it is consistent with the full disclosure removes the amount of the note from the Notes Receivable account and records the dishonored note in the maker's account. Second, and more important, if the maker of the dishonored principle, which requires financial statements (including footnotes) to note applies for credit in the future, his or her account will reveal all past dealings, including report al relevant information. the dishonored note. Restoring the account also reminds the company to continue collection efforts from Hart for both principal and interest. The entry records the full amount including interest, to ensure that it is included in collection efforts. Recording End-of-Period Interest Adjustment When notes receivable are outstanding at the end of a period, any accrued interest earned is computed and recorded. To illustrate, on December 16, TechCom accepts a $3,000, 60-day, 12% note from a customer in granting an extension on a past-due account. When TechCom's accounting period ends on December 31, $15 of interest has accrued on this note ($3,000 X 12% x 15/360). The Assets - Liabilities + Equity To charge account of C. Hart for a dishonored note following adjusting entry records this revenue. Dec. 31 Interest Receivable Interest Revenue To record accrued interest earned IS

7 Chapter 9 Accounting for Receivables 371 Interest Revenue appears on the income statement, and Interest Receivable appears on the balance sheet as a current asset. When the December 16 note is collected on February 14, TechCom's entry to record the cash receipt is Fab. 14 Cash Interest Revenue Interest Receivable Notes Receivable Received payment of note and its interest Total interest earned on the 60-day note is $60. The $ 15 credit to Interest Receivable on February 14 reflects the collection of the interest accrued from the December 31 adjusting entry. The $45 interest earned reflects TechCom's revenue from holding the note from January 1 to February 14 of the current period. QuiCk Check Answers p Irwin purchases $7,000 of merchandise from Stamford on December 16, Stamford accepts Irwin's $7,000, 90-day,12% note as payment. Stamford's accounting period ends on December 31, and it does not make reversing entries. Prepare entries for Stamford on December , and December 31, Using the information in Quick Check 8, prepare Stamford's March 16, 2009, entry if Irwin dishonors the note. of Receivables 3, ,000 Companies can convert receivables to cash before they are due. Reasons for this include the need for cash or the desire not to be involved in collection activities. Converting receivables is usually done either by (1) selling them or (2) using them as security for a loan. A recent survey shows that about 20% of companies obtain cash from either selling receivables or pledging them as security. In some industries such as textiles, apparel and furniture, this is common practice. Selling Receivables A company can sell all or a portion of its receivables to a finance company or bank. The Assets = Liabilities + Equity P2 Explain how receivables buyer, called a factor, charges the seller a factoring fee and then the buyer takes ownership can be converted to of the receivables and receives cash when they come due. By incurring a factoring fee, the cash before maturity. seller receives cash earlier and can pass the risk of bad debts to the factor. The seller can also choose to avoid costs of billing and accounting for the receivables. To illustrate, if TechCom Global: Firms in export sales increasingly sel their receivables to factors sells $20,000 of its accounts receivable and is charged a 4% factoring fee, it records this sale as follows. Aug.15 Cash 19,200 Assets = Liabilities + Equity Factoring Fee Expense Accounts Receivable 20,000 Sold accounts receivable for cash, less 4% fee. The accounting for sales of notes receivable is similar to that for accounts receivable. The detailed entries are covered in advanced courses. Pledging Receivables A company can raise cash by borrowing money and pledging its receivables as security for the loan. Pledging receivables does not transfer the risk of bad debts to the lender because the

8 172 Chapter 9 Accounting for Receivables borrower retains ownership of the receivables. If the borrower defaults on the loan, the has arightto be paidfromthe cash receipts of the receivable when collected. To illusi istrate, when TechCom borrows $35,000 and pledges its receivables as security, it records trans- this action as follows. Assets = Liabilities + Equity Aug. 20 Cash 35, , ,000 Notes Payable Borowedmoney with a note secured by pledging receivables. Since pledged receivables are committed as security for a specific loan, the borrower's financial statements disclose the pledging of them. TechCom, for instance, includes the following note with its statements: Accounts receivable of $40,000 are pledged as security for a $35,000 note payable. Decision Insight ^^^^^^^^^mim^^mmmm^mmim^^^^^ What's the Proper Allowance! How can we assess whether a company has properly e its alowance for uncollectibles? One way is to compute the ratio of the allowance account to the gross accounts receivable. When this ratio is analyzed over several consecutive periods, trends often emerge that reflect on the adequacy of the allowance amount. Decision Analysis Accounts Receivable Turnover ^ Compute accounts receivable turnover and use it to help assess financial condition. EXHIBIT 9.17 Accounts Receivable Turnover IfiJ Video9.1 EXHIBIT 9.18 Rate of Accounts Receivable Turnoverfor TechCom For a company selling on credit, we want to assess both the quality and liquidity of its a Quality of receivables refers to the likelihood of collection without loss. Experience shows ( receivables are outstanding beyond their due date, the lower the likelihood of collection. Liquidity c ceivables refers to the speed of collection. Accounts receivable turnover is a measure of both t ity and liquidity of accounts receivable. It indicates how often, on average, receivables i collected during the period. The formula for this ratio is shown in Exhibit Accounts receivable turnover = Net sales Average accounts receivable, act We prefer to use net credit sales in the numerator because cash sales do not create receivables. since financial statementsrarelyreport net credit sales, our analysis uses net sales. The denomin average accounts receivable balance, computed as (Beginning balance + Ending balance) ~+ Z has an accounts receivable turnover of 5.1. This indicates its average accounts receivahle verted into cash 5.1 times during the period. Exhibit 9.18 shows graphically this TechCom. Accounts receivable turnover also reflects bow well management is doing in granting cr w m w O o Jan. Feb. March Apr. May June July Aug. Sent Oct Nov. Dec. «Point: Credit risk ratio is computed in a desire to increase sales. A high turnover in comparison with competitors suggests by dividing the Alowance for Doubtful should consider using more liberal credit terms to increase sales. A low turnover Accountsby Accounts Receivable. The should consider stricter credit terms and more aggressive collection efforts to avoid having its higher this ratio, the higher is credit risk tied up in accounts receivable.

9 Chapter 9 Accounting for Receivables 373 lb illustrate, we take datafromtwo competitors: Dell and Apple. Exhibit 9.19 shows accounts receivable turnover for both companies EXHIBIT 9.19 Analysis Using Accounts Dell $57,420 $55,788 $49,121 $41,327 Receivable Turnover $ $ 3,826 $ 4,025 $ 3.1 II Accounts receivable turnover $19,315 $13,931 $ 8,279 $ 6,207 $ 1,074 $ 835 $ 770 $ 666 Accounts receivable turnover Dell's 2006 turnover is computed ($ millions) as $57,420/$4,352 = This means that Dell's average accounts receivable balance was converted into cash 13.2 times in Its tumover declined in 2006, but is higher than that for Apple's turnover exceeds that for Dell in each of the past two years. Is either company's turnover too high? Since sales are markedly growing over this time period, each company's turnover rate does not appear to be too high. Instead, both Dell and Apple seem to be doing well in managing receivables. Tumover for competitors is generally in the range of 7 to 12 for this same period.' Decision Maker BBaBHiMa i Family Physician Your medical practice is barely profitable, so you hire a health care analyst. The analyst W W highlights several points including the following: "Accounts receivable turnover is too low. Tighter credit poli cies are recommended along with discontinuing service to those most delayed in payments." How do you interpret these recommendations? What actions do you take? [Answer p. 376] Hfconstration Problem Clayco Company completes the following selected transactions during year July 14 Writes off a $750 account receivable arising from a sale to Briggs Company that dates to 10 months ago. (Clayco Company uses the allowance method.) DP9 30 Clayco Company receives a $1,000, 90-day, 10% note in exchange for merchandise sold to Sumrell Company (the merchandise cost $600). Aug. 15 Receives $2,000 cash plus a $10,000 note from JT Co. in exchange for merchandise that sells for $12,000 (its cost is $8,000). The note is dated August 15, bears 12% interest, and matures in 120 days. Nov. 1 Completed a $200 credit card sale with a 4% fee (the cost of sales is $150). The cash is received immediately from the credit card company. 3 Sumrell Company refuses to pay the note that was due to Clayco Company on October 28. Prepare the journal entry to charge the dishonored note plus accrued interest to Sumrell Company's accounts receivable. 5 Completed a $500 credit card sale with a5% fee (the cost of sales is $300). The payment from the credit card company is received on Nov Received the full amount of $750 from Briggs Company that was previously written off on July 14. Record the bad debts recovery. Dec. 13 Received payment of principal plus interest from JT for the August 15 note. Required I. Prepare journal entries to record these transactions on Clayco Company's books. 2. Prepare an adjusting journal entry as of December 31, 2009, assuming the following: 1 As a. an Bad estimate debts are of average estimated days' to be sales $20,400 uncollected, by aging accounts we compute receivable. how The m.inv unadjusted days {on balance ai'crage) of it takes to collect receivables the Allowance as follows: for 363 Doubtful days -r Accounts accounts receivable is $1.000 turnover. debit. An increase in this average collection periotl can signal a decline in customers' financial condition

10 374 Chapter 9 Accounting for Receivables b. Alternatively, assume that bad debts are estimated using the percent of sales method. The Allowance for Doubtful Accounts had a $1,000 debit balance before adjustment, and the company estimates bad debts to be 1% of its credit sales of $2,000,000. Planning the Solution Examine each transaction to determine the accounts affected, and thenrecordthe entries. For the year-end adjustment, record the bad debts expense for the two approaches. Solution to Demonstration Problem July 14 Wrote off an uncollectible account Jul/ 30 1,000 Sold merchandise for a 90-day, 10% note. July 30 Cost of Goods Sold 600 To record die cost ofjuly 30 sale. m Aug. IS Cash 2,000 Notes Receivable JT Co. 10,000 Sales Aug.15 Sold merchandise to customer for $2,000 " cash and $10,000 note. Cost of Goods Sold 8,000 woo 7brecord the cost of Aug. IS sale. Nov. 1 Cash 192 S Sales To record credit card sale less a 4% credit 200 Nov. 1 card expense. 150 To record the cost of Nov. 1 sale. ISO Nov. 3 Nov. 5 Nov. 5 Nov. 9 Nov. IS Notes Receivable Sumrel Co To charge account of Sumrell Company for a $1,000 dishonored note and interest of $1,000 X 10% X 90/360. Accounts Receivable Credit Card Co. Sales Torecordcredit card sale less a 5% credit card expense. Merchandise Inventory Torecord the cost of Nov. 5 sale. Cash Accounts Receivable Credit Card Co. To record cash receipt from Nov. 5 sale. Alowance for Doubtful Accounts To reinstate the account of Briggs Company previously written off. Icontinued on next page] 750 1, n IJOO