Other receivables include nontrade receivables

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Other receivables include nontrade receivables. Examples are interest receivable, loans to company officers, advances to employees, and income taxes refundable.These do not generally result from the operations of the business. Therefore companies generally classify and report them as sepa- rate items in the balance sheet. Three accounting issues associated with accounts receivable are: 1. Recognizing accounts receivable. 2. Valuing accounts receivable. 3. Disposing of accounts receivable. Identify the different types of receivables. S T U D Y O B J E C T I V E 1 398 TYPES OF RECEIVABLES ACCOUNTS RECEIVABLE E T H I C S N O T E Companies report receiv- ables from employees separately in the financial statements. The reason: Sometimes those assets are not the result of an ”arm’s- length” transaction. PDF Watermark Remover DEMO : Purchase from to remove the watermark
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Recognizing Accounts Receivable Recognizing accounts receivable is relatively straightforward. In Chapter 5 we saw how the sale of merchandise affects accounts receivable.To review, assume that Jordache Co. on July 1, 2010, sells merchandise on account to Polo Company for $1,000 terms 2/10, n/30. On July 5, Polo returns mer- chandise worth $100 to Jordache Co. On July 11, Jordache receives payment from Polo Company for the balance due.The journal entries to record these transactions on the books of Jordache Co. are as follows. July 1 Accounts Receivable—Polo Company 1,000 Sales 1,000 (To record sales on account) July 5 Sales Returns and Allowances 100 Accounts Receivable—Polo Company 100 (To record merchandise returned) July 11 Cash ($900 H11002 $18) 882 Sales Discounts ($900 H11003 .02) 18 Accounts Receivable—Polo Company 900 (To record collection of accounts receivable) The opportunity to receive a cash discount usually occurs when a manufacturer sells to a wholesaler or a wholesaler sells to a retailer.The selling company gives a discount in these situations either to encourage prompt payment or for competitive reasons. Retailers rarely grant cash discounts to customers. In fact, when you use a retailer’s credit card ( Sears , for example), instead of giving a dis- count, the retailer charges interest on the balance due if not paid within a specified period (usually 25–30 days). To illustrate, assume that you use your JCPenney credit card to pur- chase clothing with a sales price of $300. JC Penney will make the follow- ing entry at the date of sale. Accounts Receivable 300 Sales 300 (To record sale of merchandise) JCPenney will send you a monthly statement of this transaction and any others that have occurred during the month. If you do not pay in full within 30 days, JCPenney adds an interest (financing) charge to the balance due.Although interest rates vary by region and over time, a common rate for retailers is 18% per year (1.5% per month).
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