Chapter 9 Receivables

Chapter 9 Receivables - Chapter 9 Receivables _ Chapter 9...

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Chapter 9 Receivables ______________________________________________ Chapter 9 presents the accounting issues related to accounts receivable and notes receivable. The chapter opens with the common classifications of receivables. While reading those classifications, make sure to distinguish between accounts receivable and notes receivable. The chapter applies the internal control principles introduced in Chapter 5 to receivables, focusing on the need for separation of duties. Accounting issues related to uncollectible receivables are covered next. Both the allowance and direct write-off methods are presented. After addressing uncollectible accounts, the text discusses notes receivable transactions. The text presents how to calculate the due date, interest, and maturity value of a note. The journal entries to record the acceptance of a note, receipt of payment on a note, and dishonoring of a note are discussed in detail. Discounting notes receivables is covered in a chapter appendix. Common classifications of receivables Accounts Receivable Other Receivables Notes Receivable Trade Receivables The common classifications of receivables are the following: 1. Accounts Receivable — credit granted to customers for sales of merchandise or services on account. These receivables are usually collected within 30 to 60 days. 2. Notes Receivable — credit granted through a formal credit instrument known as a promissory note. Notes are often used for credit periods of more than 60 days. 3. Other Receivables — such as interest receivable or receivables resulting from loans to officers or employees. Trade receivables are receivables resulting from the sale of merchandise or services on credit. Both accounts receivable and notes receivable can be classified as trade receivables. Please remember that an account receivable results from a credit sale on an open account, such as a store charge. These receivables usually require no more than a customer's signature on a receipt or order form. In some cases, the customer's verbal agreement is accepted in lieu of a signature. A note receivable is evidenced by a signed promissory note. This note is a written promise to pay a specified amount of money. It includes the date that payment is due, to whom payment will be made, and what interest (if any) will accompany the payment. One advantage of a note receivable is that it represents a stronger legal claim than an accounts receivable. Because the debt and repayment terms are acknowledged by the debtor's signature, a note will hold up better in court if disputed. Since notes are a stronger legal document, it is a good idea to ask a credit customer to sign a note receivable (rather than allowing him or her to
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buy on an open account) if the following conditions exist. 1.
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Chapter 9 Receivables - Chapter 9 Receivables _ Chapter 9...

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