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Chapter 7
Accounting for Receivables
QUESTIONS
1. When customers use credit cards, the selling companies can avoid having to directly
2. Revenues and expenses usually are not matched under the direct write-off method because
the revenues recorded from the uncollectible accounts often appear on the income statement
3. The accounting constraint of materiality suggests that the requirements of accounting
4. Creditors prefer notes receivable to accounts receivable because the notes can be more
easily converted into cash before they are due by discounting (or selling) them to a financial
5. Writing off a bad debt against the Allowance account does not reduce the estimated
realizable value of a company’s accounts receivable because the write-off reduces the
6. The adjusted balances of Bad Debts Expense and Allowance for Doubtful Accounts are
virtually never equal because the expense amount reflects only the events of the current
8. Google uses the allowance method to account for doubtful accounts as evidenced by the
10. Samsung lists its accounts receivable as “Trade and other receivables” in current assets.
There is no allowance listed on the face of the balance sheet. Students might follow up and
see that in its Note 10 – Trade and other receivables, Samsung reports using the allowance
QUICK STUDIES
Quick Study 7-1 (15 minutes)
1. Cash............................................................................... 19,000
Credit Card Expense*................................................... 1,000
Sales......................................................................... 20,000
2. Accounts Receivable—Credit Card Cos..................... 4,800
Credit Card Expense*................................................... 200
Sales......................................................................... 5,000
To record credit card sales less fees.
*$5,000 x 4%
5 days later
Cash............................................................................... 4,800
Accounts Receivable—Credit Card Cos............... 4,800
To record cash receipts.
Quick Study 7-2 (10 minutes)
Quick Study 7-3 (10 minutes)
Oct. 30 Accounts Receivable—P.Moore.................................50,000
Bad Debts Expense............................................... 50,000
To reinstate an account previously written off.
Oct. 30 Cash..............................................................................50,000
Quick Study 7-4 (15 minutes)
1. direct write-off method
Quick Study 7-5 (15 minutes)
1.
Jan. 31 Allowance for Doubtful Accounts........................... 800
2.
Mar. 9 Accounts Receivable—C. Green*............................ 300
9 Cash........................................................................... 300
Accounts Receivable—C. Green....................... 300
To record payment on a receivable.
Quick Study 7-6 (15 minutes)
1.
2. Desired balance in allowance = $1,485 (part 1)
Adjustment required = $1,485 cr. + $300 dr. = $1,785
Quick Study 7-7 (15 minutes)
Quick Study 7-8 (15 minutes)
1. Maturity date is October 31, which is computed as follows:
Days in August................................................................. 31
2.
Aug. 2 Notes Receivable—R. Albany........................... 6,000
Accounts Receivable—R. Albany.............. 6,000
To record receipt of note on account.
Quick Study 7-9 (10 minutes)
Oct. 31 Cash.................................................................... 6,180
Quick Study 7-10 (15 minutes)
Dec. 31 Interest Receivable............................................ 50
Maturity date
Jan. 15 Cash.................................................................... 10,075
Quick Study 7-11 (10 minutes)
May 1 Cash........................................................................121,875
Quick Study 7-12 (10 minutes)
Accounts receivable turnover =
Net sales
Average accounts receivable
EXERCISES
Exercise 7-1 (25 minutes)
Part 1
GENERAL LEDGER
Accounts Receivable Sales
Sales Returns and
Allowances
ACCOUNTS RECEIVABLE LEDGER
Ski Shop Welcome Enterprises Zia Natara
Part 2
Vail Company
Schedule of Accounts Receivable
November 30, 2015
Ski Shop.................................................................................. $7,328
Welcome Enterprises............................................................ 1,350
Exercise 7-2 (20 minutes)
Apr. 8 Cash......................................................................... 8,064
8 Cost of Goods Sold................................................ 6,000
Merchandise Inventory.................................... 6,000
To record cost of sales.
12 Accounts Receivable—Continental...................... 5,460
Credit Card Expense*............................................. 140
20 Cash......................................................................... 5,460
Accounts Receivable—Continental.................. 5,460
To record cash received on credit sales less fees.
Exercise 7-3 (20 minutes)
March 29 Accounts Receivable—Lester Co..............................45,000
Bad Debts Expense............................................... 45,000
To reinstate an account previously written off.
Exercise 7-4 (20 minutes)
Feb. 1 Allowance for Doubtful Accounts.............................. 580
Accounts Receivable—P. Park............................. 580
To write off an account.
June 5 Cash.............................................................................. 580
Accounts Receivable—P. Park............................. 580
To record cash received on account.
Exercise 7-5 (15 minutes)
a.
Dec. 31 Bad Debts Expense...................................................... 685
Allowance for Doubtful Accounts*....................... 685
To record estimated bad debts expense.
b.
Dec. 31 Bad Debts Expense......................................................1,391
Allowance for Doubtful Accounts**...................... 1,391
To record estimated bad debts expense.
Exercise 7-6 (30 minutes)
a. Computation of the estimated balance of the allowance for uncollectibles:
Not due: $396,000 x 0.01 = $ 3,960
1 to 30: 90,000 x 0.02 = 1,800
