Click to edit Master title style

Transcription

1 1 Adeng Pustikaningsih, M.Si. Dosen Jurusan Pendidikan Akuntansi Fakultas Ekonomi Universitas Negeri Yogyakarta CP: adengpustikaningsih@uny.ac.id 1

2 2 9 Receivables 2

3 3 After studying this chapter, you should be able to: 1. Describe the common classifications of receivables. 2. Describe the nature of and the accounting for uncollectible receivables. 3. Describe the direct write-off method of accounting for uncollectible receivables. 3

4 4 After studying this chapter, you should be able to: 4. Describe the allowance method of accounting for uncollectible receivables. 5. Compare the direct write-off and allowance methods of accounting for uncollectible accounts. 4

5 5 After studying this chapter, you should be able to: 6. Describe the nature, characteristics, and accounting for notes receivables. 7. Describe the reporting of receivables on the balance sheet. 5

6 6 9-1 Objective 1 Describe the common classifications of receivables. 6

7 7 Classification of Receivables 9-1 The term receivables includes all money claims against other entities, including people, business firms, and other organizations. 7

8 8 Accounts Receivable 9-1 Accounts receivable are normally expected to be collected within a relatively short period, such as 30 or 60 days. 8

9 9 Notes Receivable 9-1 Notes receivable are amounts that customers owe for which a formal, written instrument of credit has been issued. 9

10 10 Other Receivables 9-1 Other receivables expected to be collected within one year are classified as current assets. If collection is expected beyond one year, these receivables are classified as noncurrent assets and reported under the caption Investments. 10

11 Objective 2 Describe the nature of and the accounting for uncollectible receivables. 11

12 Companies often sell their receivables to other companies. This transaction is called factoring the receivables, and the buyer of the receivables is called a factor. 12

13 13 Uncollectible Receivables 9-2 There are two methods of accounting for receivables that appear to be uncollectible: the direct write off method and the allowance method. 13

14 The direct write off method records bad debt expense only when an account is judged to be worthless. The allowance method records bad debt expense by estimating uncollectible accounts at the end of the accounting period. 14

15 Objective 3 Describe the direct writeoff method of accounting for uncollectible receivables. 15

16 16 Direct Write-Off Method On May 10, a Rp4,200,000 accounts receivable from D. L. Rosana has been determined to be uncollectible. 9-3 May 10 Bad Debt Expense Accounts Receivable D. L. Ross

17 The amount written off is later collected on November 21. Nov. 21 Accounts Receivable D. L. Rosana Bad Debt Expense Cash Accounts Receivable D. L. Rosana

18 Example Exercise 9-1 Journalize the following transactions using the direct write-off method of accounting for uncollectible receivables. July 9 Received Rp1,200,000 from Jaya Basuki and wrote off the remainder owed of Rp3,900,000 as uncollectible. Oct. 11 Reinstated the account of Jaya Basuki and received Rp3,900,000 cash in full payment

19 Follow My Example 9-1 July 9 Cash 1,200,000 Bad Debt Expense 3,900,000 Accounts Receivable Jaya Basuki 5,100,000 Oct. 11 Accounts Receivable Jaya Basuki 3,900,000 Bad Debt Expense 3,900, Cash 3,900,000 Accounts Receivable Jaya Basuki 3,900,000 For Practice: PE 9-1A, PE 9-1B 19 18

20 Objective 4 Describe the allowance method of accounting for uncollectible receivables. 20

21 21 Allowance Method On December 31, IndoToner Company estimates that a total of Rp40,000,000 of the Rp1,000,000,000 balance in her company s Accounts Receivable will eventually be uncollectible. 9-4 Dec. 31 Bad Debt Expense Allowance for Doubtful Accounts Uncollectible accounts estimate

22 22 Net Realizable Value 9-4 The net amount that is expected to be collected, Rp960,000,000 (Rp1,000,000,000 Rp40,000,000), is called the net realizable value (NRV). The adjusting entry reduces receivables to the NRV and matches uncollectible expenses with revenues. 22

23 On January 21, Johan Pariang s account totaling Rp6,000,000 is written off because it is uncollectible. Jan. 21 Allowance for Doubtful Accounts Accounts Receivable Johan Pariang To write off the uncollectible account

24

25 During 2008, IndoToner Company writes off Rp36,750,000 of uncollectible accounts, including the Rp6,000,000 account of Johan Pariang. After posting all entries to write-off uncollectible amounts, the Allowance for Doubtful Accounts will have a credit balance of Rp3,250,000 (Rp40,000,000 Rp36,750,000). 25

26 ALLOWANCE FOR DOUBTFUL ACCOUNTS Total accounts Jan. 1, 2008 Bal. 40,000,000 { written off Jan. 21 6,000,000 Rp36,750,000 Feb. 2 3,900,000 Dec. 31 Unadjusted bal 3,250,

27 If IndoToner Company had written off Rp44,100,000 in accounts receivable during 2008, the Allowance for Doubtful Accounts would have a debit balance of Rp4,100,

28 ALLOWANCE FOR DOUBTFUL ACCOUNTS Total accounts Jan. 1, 2008 Bal. 40,000,000 { written off Jan. 21 6,000,000 Rp44,100,000 Feb. 2 3,900,000 Dec. 31 Unadjusted bal 4,100,

29 29 Collecting a Written-Off Account 9-4 Nani Siregar account of Rp5,000,000 which was written off on April 2 is later collected on June 10. Two entries are needed: one to reinstate Nani Siregar account and a second to record receipt of the cash. 29

30 Entry 1: Reinstate the account. June 10 Accounts Receivable Nani Siregar Allowance for Doubtful Accounts To reinstate the account written off on Jan

31 Entry 2: Record collection of cash. June 10 Cash Accounts Receivable Nani Siregar Collection of written-off account

32 Example Exercise 9-2 Journalize the following transactions using the allowance method of accounting for uncollectible receivables. July 9 Received Rp1,200,000 from Jaya Basuki and wrote off the remainder owed of Rp3,900,00 as uncollectible. Oct. 11 Reinstated the account of Jaya Basuki and received Rp3,900,000 cash in full payment

33 Follow My Example 9-2 July 9 Cash 1,200,000 Allowance for Doubtful Accounts 3,900,000 Accounts Receivable Jaya Basuki 5,100,000 Oct. 11 Accounts Receivable Jaya Basuki 3,900,000 Allowance for Doubtful Accounts 3,900, Cash 3,900,000 Accounts Receivable Jaya Basuki 3,900,000 For Practice: PE 9-2A, PE 9-2B 33 32

34 34 Estimating Uncollectibles 9-4 The allowance method uses two ways to estimate the amount debited to Bad Debt Expense. 1. Estimate based on a percentage of sales. 2. Estimate based on analysis of receivables. 34

35 35 Estimate Based on a Percentage of Sales 9-4 If credit sales for the period are Rp3,000,000,000 and it is estimated that 1½ % will be uncollectible, the Bad Debt Expense is debited for Rp45,000,000 (Rp3,000,000,000 x.015). This approach disregards the balance in the allowance account before the adjustment. 35

36 After this adjusting entry is posted, Allowance for Doubtful Accounts will have a balance of Rp48,250,000. Dec. 31 Bad Debt Expense Allowance for Doubtful Accounts Uncollectible accounts (Rp3,000,000,000 x = Rp45,000,000)

37 BAD DEBT EXPENSE Dec. 31 Adj entry 45,000,000 Dec. 31 Adjusted bal. 45,000,000 Total accounts written off Rp36,750,000 ALLOWANCE FOR DOUBTFUL ACCOUNTS { Jan. 1, 2008 Bal. 40,000,000 Jan. 21 6,000,000 Feb. 2 3,900,000 Dec. 31 Unadjusted bal 3,250,000 Dec. 31 Adj. entry 45,000,000 Dec. 31 Adjusted bal. 48,250,

38 Example Exercise 9-3 At the end of the current year, Accounts Receivable has a balance of Rp800,000,000; Allowance for Doubtful Accounts has a credit balance of Rp7,500,000; and net sales for the year total Rp3,500,000,000. Bad debt expense is estimated at ½ of 1% of net sales. Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense; and (c) the net realizable value of accounts receivable

39 Follow My Example 9-3 (a) Rp17,500,000 (Rp3,500,000,000 x.005) Adjusted Balance (b) Accounts Receivable Rp800,000,000 Allowance for Doubtful Accounts (Rp7,500,000 + Rp17,500,000) 25,000,000 Bad Debt Expense 17,500,000 (c) Rp775,000,000 (Rp800,000,000 Rp25,000,000) For Practice: PE 9-3A, PE 9-3B 39 38

40 40 Estimating Uncollectibles Based on Analysis of Receivables 9-4 The longer an account receivable is outstanding, the less likely that it will be collected. Basing the estimate of uncollectible accounts on how long specific amounts have been outstanding is called aging the receivables. 40

41 41 Click Aging to edit of Accounts Master title style Receivables 9-4 A B C D E F G H I Not Days Past Due Past Over Customer Balance Due Aslan Rp 150,000 Rp150, B.T.Barus 610,000 Rp350,000 Rp260, Bambang 470,000 Rp470, Subang Jati 160, , Total Rp86,300,000 Rp75,000,000 Rp4,000,000 Rp3,100,000 Rp1,900,000 Rp1,200,000 Rp800,00 Rp300,

42 42 Estimate of Uncollectible Accounts 9-4 A B C D Estimated Uncollectible Accounts Age Interval Balance Percent Amount 1 Not past due Rp75,000,000 2% Rp1,500, days past due 4,000, , days past due 3,100, , days past due 1,900, , days past due 1,200, , days past due 800, ,000 7 Over 365 days past due 300, ,000 8 Total Rp86,300,000 Rp3,390,000 42

43 43 Collection Rates by Number of Months Past Due

44 44 Estimate Based on Analysis of Receivables 9-4 If it is estimated that Rp3,390,000 of the receivables will be uncollectible and the Allowance for Uncollectible Accounts currently has a balance of Rp510,000, the Bad Debt Expense must be debited for Rp2,880,000 (Rp3,390,000 Rp510,000)

45 45 Estimate Based on Analysis of Receivables 9-4 Aug. 31 Bad Debt Expense Allowance for Doubtful Accounts Uncollectible accounts (Rp3,390,000 Rp510,00)

46 BAD DEBT EXPENSE Aug. 31 Adj. entry 2,880,000 Aug. 31 Adj. bal. 2,880,000 ALLOWANCE FOR DOUBTFUL ACCOUNTS Aug. 31 Unadj. bal. 510,000 Aug. 31 Adj. entry 2,880,000 Aug. 31 Adj. bal. 3,390,

47 If the unadjusted balance of Allowance for Uncollectible Accounts had been a debit balance of Rp300,000, the amount of the adjustment would have been Rp3,690,000 (Rp3,390,000 + Rp300,000). 47

48 BAD DEBT EXPENSE Aug. 31 Adj. entry 3,690,000 Aug. 31 Adj. bal. 3,690,000 ALLOWANCE FOR DOUBTFUL ACCOUNTS Aug. 31 Unadj. bal. 300,000 Aug. 31 Adj. entry 3,690,000 Aug. 31 Adj. bal. 3,390,

49 Example Exercise 9-4 At the end of the current year, Accounts Receivable has a balance of Rp800,000,000; Allowance for Doubtful Accounts has a credit balance of Rp7,500,000; and net sales for the year total Rp3,500,000,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as Rp30,000,000. Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense, and (c) the net realizable value of accounts receivable

50 Follow My Example 9-4 (a) Rp22,500,000 (Rp30,000,000 Rp7,500,000) Adjusted Balance (b) Accounts Receivable Rp800,000,000 Allowance for Doubtful Accounts 30,000,000 Bad Debt Expense 22,500,000 (c) Rp770,000,000 (Rp800,000,000 Rp30,000,000) For Practice: PE 9-4A, PE 9-4B 50 49

51 Objective 5 Compare the direct writeoff and allowance methods of accounting for uncollectible accounts 51

52 52 Click Comparing to edit Direct-Write-Off Master title style and Allowance Methods 9-5 Direct Write-Off Method Allowance Method Mar.1 Bad Debt Expense 3,650,000 Allowance for Doubtfull Accounts 3,650,000 Accounts Receivable - C.Yanuar 3,650,000 Accounts Receivable - C.Yanuar 3,650,000 Apr.12 Cash 2,250,000 Cash 2,250,000 Bad Debt Expense 3,250,000 Allowance for Doubtfull Accounts 3,250,000 Accounts Receivable - Karina Budiman 5,500,000 Accounts Receivable - Karina Budiman 5,500,000 June.22 Accounts Receivable - C.Yanuar 3,650,000 Accounts Receivable - C.Yanuar 3,650,000 Bad Debt Expense 3,650,000 Allowance for Doubtfull Accounts 3,650, Cash 3,650,000 Cash 3,650,000 Accounts Receivable - C.Yanuar 3,650,000 Accounts Receivable - C.Yanuar 3,650,000 Sept.22 Bad Debt Expense 6,445,000 Allowance for Doubtfull Accounts 6,445,000 Accounts Receivable - Jason Bimasakti 1,100,000 Accounts Receivable - Jason Bimasakti 1,100,000 Accounts Receivable - Santoso Budiman 2,220,000 Accounts Receivable - Santoso Budiman 2,220,000 Accounts Receivable - Sari Nuriah 775,000 Accounts Receivable - Sari Nuriah 775,000 Accounts Receivable - Sandy Nurmila 1,360,000 Accounts Receivable - Sandy Nurmila 1,360,000 Accounts Receivable - Amir Wicaksana 990,000 Accounts Receivable - Amir Wicaksana 990,000 Dec.31 No Entry Bad Debt Expense 42,500,000 Allowance for Doubtful Accounts 42,500,000 Uncollectible accounts estimate. (Rp3,400,000,000 x = Rp42,500,000) 52

53 53 Comparing the Direct Write-Off and Allowance Methods Direct Write-Off Method 9-5 Amount of bad debt expense recorded When the actual accounts receivable are determined to be uncollectible Allowance account Primary users No allowance account is used Small companies and companies with relatively few receivables 53 52

54 54 Comparing the Direct Write-Off and Allowance Methods Allowance Method 9-5 Amount of bad debt expense recorded Allowance account Primary users Using estimate based on either (1) a percentage of sales or (2) analysis of receivables. The allowance account is used Large companies and those with a large amount of receivables 53 54

55 Objective 6 Describe the nature, characteristics, and accounting for notes receivable. 55

56 56 Characteristics of Notes Receivable 9-6 A note receivable, or promissory note, is a written document containing a promise to pay: a specific amount of money (face amount) on demand or at a definite time to an individual or a business (payee), or to the bearer or holder of the note. 56

57 57 Characteristics of Notes Receivable 9-6 The one making the promise is called the maker. The date a note is to be paid is called the due date or maturity date. 57

58 58 Payee $ 2, Fresno, California 20 March Ninety days _AFTER DATE We PROMISE TO PAY TO THE ORDER OF Judson Company Two DOLLARS thousand five hundred 00/ PAYABLE AT City National Bank VALUE RECEIVED WITH INTEREST AT 10% NO. 14 DUE June 14, 2008 Maker H. B. Lane TREASURER, WILLIARD COMPANY

59 59 What is the due date of a 90-day note dated March 16? Total days in note Number of days in March 31 Issue date of note March 16 Remaining days in March Number of days in April Number of days in May Residual days in June 90 days 15 days 75 days 30 days 45 days 31 days 14 days 9-6 Answer: June

60 60 Accounting for Notes Receivable 9-6 Received a Rp6,000,000, 12%, 30-day note dated November 21, 2008 in settlement of the account of W. A Barito Co. Nov. 21 Notes Rec. W. A. Barito Co Accts. Rec. W. A Barito Co Received 30-day, 12% note dated November 21,

61 On December 21, when the note matures, the firm receives Rp6,060,000 from W. A. Barito Company (Rp6,000,000 plus Rp60,000 interest). Dec. 21 Cash Notes Rec. W. A. Barito Co Interest Revenue* Received principal and interest on matured note. *Rp6,000,000 x 12% x 30/360 = Rp60,

62 62 If W. A. Bunn Company fails to pay the note on the due date, it is considered a dishonored note receivable. The note and interest are transferred to the customer s account. 9-6 Dec. 21 Accts Rec. W. A. Barito Co Notes Rec. W. A. Barito Co Interest Revenue Recorded dishonored note, plus interest

63 63 A 90-day, 12% note dated December 1, 2008, is received from PT Cemara to settle its account, which has a balance of Rp4,000, Dec. 1 Notes Rec. PT Cemara Accts. Rec. PT Cemara Accepted note in settlement of account

64 64 Assuming that the accounting period ends on December 31, an adjusting entry is required to record the accrued interest of Rp40,000 (Rp4,000,000 x 0.12 x 30/360) Dec. 31 Interest Receivable Interest Revenue Accrued interest (Rp4,000,000 x 12% x 30/360)

65 On March 1, 2009, Rp4,120,000 is received for the note (Rp4,000,000) and interest (Rp120,000) Mar. 1 Cash Notes Rec. PT Cemara Interest Receivable Interest Revenue Collected note and accrued interest. (Rp4,000,000 x 12% x 30/360)

66 Example Exercise 9-5 RS Palmerah Indah received a 120-day, 6% note for Rp40,000,000, dated March 14 from a patient on account. a. Determine the due date of the note. b. Determine the maturity value of the note. c. Journalize the entry to record the receipt of the payment of the note at maturity

67 67 Follow My Example a. July 12 determined as follows: March 17 days (31 14) April 30 days May 31 days June 30 days July 12 days Total 120 days b. Rp40,800,000 [Rp40,000,000 + (Rp40,000,000 x 6% x 120/360)] c. Cash 40,800,000 Notes Receivable 40,000,000 Interest Revenue 800,000 For Practice: PE 9-5A, PE 9-5B 67 66

68 Objective 7 Describe the reporting of receivables on the balance sheet. 68

69 69 Receivables on Balance Sheet Indotronics Co. Balance Sheet December 31, 2008 Assets Current assets: Cash Rp119,500,000 Notes receivable 250,000,000 Accounts receivable Rp445,000,000 Less allowance for doubtful accounts 15,000, ,000,000 Interest receivable 14,500,000 Merchandise inventory 714,000,000 Receivables (including the allowance account) are highlighted

70 70 Accounts Receivable Turnover 9-7 The accounts receivable turnover measures how frequently during the year the accounts receivable are being converted to cash. Accounts Receivable Turnover = Net sales Average accounts receivable 70 69

71 71 Federal Express Corporation Net sales Rp19,364,000 Rp17,383, Accounts receivable 2,703,000 2,475,000 Rp2,199,000 Average accounts receivable 2,589,000 2,337,000 * 9-7 *[(Rp2,475,000 + Rp2,199,00)/2] Accounts Receivable Turnover (2004) = Rp17,383,000 Rp2,337,000 Accounts Receivable Turnover (2004) =

72 72 Federal Express Corporation Net sales Rp19,364,000 Rp17,383, Accounts receivable 2,703,000 2,475,000 Rp2,199,000 Average accounts receivable 2,589,000 2,337, * * [(Rp2,703,000 + Rp2,475,000)/2] Accounts Receivable Turnover (2005) = Rp19,364,000 Rp2,589,000 Accounts Receivable Turnover (2005) =

73 73 Number of Days Sales in Receivables 9-7 Use: To assess the efficiency in collecting receivables and in the management of credit. Number of Days Sales in Receivables = Average Accounts receivable Average daily sales 73 72

74 74 Federal Express Corporation Net sales Rp19,364,000 Rp17,383,000 Accounts receivable 2,703,000 2,475,000 Rp2,199,000 Average accounts receivable 2,589,000 2,337,000 Average daily sales * --- ** * [(Rp2,475,000 + Rp2,119,000)/2] Number of Days Sales in Receivables (2004) **(Rp17,383,000/365) = Rp2,337, Number of Days Sales in Receivables (2004) =

75 75 Federal Express Corporation Net sales Rp19,364,000 Rp17,383, Accounts receivable 2,703,000 2,475,000 Rp2,199,000 Average accounts receivable 2,589,000 2,337,000 Average daily sales * ** * [(Rp2,703,000+ **(Rp19,364,000/365) Rp2,475,000)/2] Number of Days Sales in Receivables (2005) = Number of Days Sales in Receivables (2005) = 48.8 Rp2,589,