StudyGuideChap08 - Chapter 8 Reporting and Analyzing...

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Chapter 8 Reporting and Analyzing Receivables Study Objectives Identify the different types of receivables. Explain how accounts receivable are recognized in the accounts. Describe the methods used to account for bad debts. Compute the interest on notes receivable. Describe the entries to record the disposition of notes receivable. Explain the statement presentation of receivables. Describe the principles of sound accounts receivable management. Identify ratios to analyze a company's receivables. Describe methods to accelerate the receipt of cash from receivables. Chapter Outline Study Objective 1 - Identify the Different Types of Receivables 1. Receivables refer to amounts due from individuals and companies. a. Receivables are generated by the functions for which a company is in business to perform b. Receivables are claims that are expected to be collected in cash. c. Receivables represent one of a company’s most liquid assets. 2. Receivables are frequently classified as: a. Accounts receivable i. A/R are generated by the functions for which a company is in business to perform 1. Amounts owed by customers on account. 2. Result from the sale of goods and services (often called trade receivables ). 3. Expected to be collected within 30 to 60 days. 4. Usually the most significant type of claim held by a company. b. Notes receivable i. More formal debt that A/R involving a formal written promise to pay 1. Recorded at net present value which involves interest being stated or imputed on the amount owed (see ii and iii below) ii. Represent claims for which formal instruments of credit are issued as evidence of debt. iii. Credit instrument normally requires payment of interest and extends for time periods of 60-90 days or longer. iv. May result from sale of goods and services (often called trade receivables ).
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c. Other receivables i. Nontrade receivables including interest receivable, loans to company officers, advances to employees, and income taxes refundable. ii. Generally classified and reported as separate items in the balance sheet. Study Objective 2 - Explain how Accounts Receivable are Recognized in the Accounts 1. For a service organization, a receivable is recorded when service is provided on account. 2. Merchandisers record accounts receivable at the point of sale of merchandise on account. 3. Entry is recorded to increase both Sales and Accounts Receivable. 4. Receivable may be reduced by sales discount and/or sales return. Study Objective 3 - Describe the Methods Used to Account for Bad Debts 1. Recognition of bad debt expense is about matching the probable bad debt to the period in which the credit sale (that may result in a bad debt) is made. a.
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This note was uploaded on 04/11/2008 for the course ACCT 200 taught by Professor Cohen during the Spring '07 term at University of Arizona- Tucson.

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StudyGuideChap08 - Chapter 8 Reporting and Analyzing...

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