6 Cash and
Receivables
Accounting School ·Zhongnan
University of Economics & Law
ntermediate
Accounting
I
中级会计学
1,Accounting for cash
Intermediate Accounting 6 Cash and Receivables
Cash is the resources
on hand to meet
planned expenditures
and emergency
situations.
Components of Cash vs,non-components
Intermediate Accounting 6 Cash and Receivables
Cash
Included in Cash Excluded from Cash
? Coins and currency
? Checking accounts
? Savings accounts
? Negotiable checks
? Bank drafts
? Certificates of deposit
? Bank overdrafts
? Postdated checks
? Travel advances
? Postage stamps
Cash and Cash Equivalents
Many companies report
investments in very short-term,
interest-earning securities as cash
equivalents in the balance sheet.
Intermediate Accounting 6 Cash and Receivables
Cash Management
Intermediate Accounting 6 Cash and Receivables
Control Over Receipts
? Immediately count the receipts (by the person
opening the mail or the sales person using the cash
register).
? Record daily all cash receipts in the accounting
records.
? Deposit daily all receipts in the company’s bank
account.
Cash Management
Intermediate Accounting 6 Cash and Receivables
Control Over Payments
? Make all payments by check (except petty cash items) so
that a record exists for every company expenditure.
? Authorize and sign all checks only after an expenditure is
verified and approved.
? Periodically reconcile the cash balance in the bank
statements with the company’s accounting records.
Petty Cash
A petty cash system is a cash fund created to allow
a company to pay for small amounts that might be
impractical or impossible to pay by check.
? The entry to record the establishment of the fund is,
Petty Cash 500
Cash 500
? The petty cash account is neither debited nor credited again
unless the fund size is to be increased or decreased,
Intermediate Accounting 6 Cash and Receivables
Petty Cash
? As money is paid from the fund,prenumbered vouchers
are prepared to document the expenditures but no journal
entries are made until the fund is reimbursed,
? At the time of reimbursement,appropriate expense
accounts are debited and the cash account is credited as
follows,
Office Supplies Expense 120
Postage Expense 150
Cash 370
Intermediate Accounting 6 Cash and Receivables
2,Bank Reconciliation
A company prepares a monthly
bank reconciliation in order to
analyze and reconcile the
differences between the cash
balance on the monthly bank
statement and the company's
accounting record of the proper
cash balance,
Intermediate Accounting 6 Cash and Receivables
Common causes of differences
Intermediate Accounting 6 Cash and Receivables
?Outstanding checks
?Deposits in transit
?Charges made by the bank
?Deposits made directly by the
bank
?Errors
Procedures in preparing a bank
reconciliation
Intermediate Accounting 6 Cash and Receivables
① Compare the deposits listed on the company's
records with the deposits on the bank statement;
② Compare the checks listed in the company's
records with the checks shown on the bank
statement;
③ Identify any deposits or charges made directly by
the bank that are not included in the company's
records;
④ Determine the effect of any errors;
⑤ Complete the bank reconciliation
Balance per books.............,$3,950
Additions to book
balance:
Direct deposit...................… 450
Interest.............................… 71
Total............................… $4,471
Deductions from book
balance:
Service charge...........… $ 7
NSF check.................… 100
Error in recording check 180 287
Adj,book balance $4,184
Balance per bank...,$4,135
Additions to bank
balance:
Deposits in transit...,500
Total..................,$4,635
Deductions from bank
balance:
Outstanding checks,
191......,$251
192......,125
195......,75 451
Adj,bank balance $4,184
Intermediate Accounting 6 Cash and Receivables
Lee Corporation
Bank Reconciliation
July 31,2005
3,Special topics
Electronic funds transfer systems
The use of computer systems to transfer funds between
parties without the use of checks,is increasingly being
used by banks to process the large number of cash
transactions generated by large companies,
Because fewer physical source documents (in the form of
checks) are available to substantiate such transactions,the
importance of internal controls,such as bank
reconciliations,is even greater,
Intermediate Accounting 6 Cash and Receivables
Special topics
Compensating balances
Banks may require a portion of any amount loaned to
remain on deposit with the bank for the duration of the loan
period,These required deposits are called compensating
balances,
SEC requires that compensating balances be separately
reported on a company's balance sheet if the compensating
balances are legally restricted,If they are not legally
restricted,they are disclosed in the notes to the financial
statements,
Intermediate Accounting 6 Cash and Receivables
4,Receivables
Receivables are all claims
against other entities,
They are usually settled in
cash.
? Trade receivables,
Receivables arising from
normal operating activities.
? Nontrade receivables,
All receivables arising
from activities other than
normal operations.
Intermediate Accounting 6 Cash and Receivables
Trade Receivables
Trade Receivables
Revenue
Recognition and
Valuation
? Normal
circumstances
? Right of return
? Valuation
? Cash discounts
? Sales returns and allowances
? Uncollectible accounts
? Financing arrangements
Recording and
Reporting Accounts
Receivable
? Interest-bearing
? Non-interest-
bearing
? Discounted
Recording and
Reporting Notes
Receivable
Intermediate Accounting 6 Cash and Receivables
Accounts receivable
Intermediate Accounting 6 Cash and Receivables
Cash (sales) discounts
,A cash (sales) discount is offered to
customers to
encourage prompt
payment of bills
Accounting for Cash (sales) discounts
Intermediate Accounting 6 Cash and Receivables
Gross price method
Assume on March 15,$1,000 of merchandise is sold on account,
The terms of the agreement are 2/10,n/30,The firm uses the
gross method for record sales on account.
Entry on date of sale:
Accounts Receivable 1,000
Sales 1,000
Continued
Accounting for Cash (sales) discounts
Intermediate Accounting 6 Cash and Receivables
Gross price method
If paid within the discount period:
Cash 980
Sales Discounts 20
Accounts Receivable 1,000
If not paid within the discount period:
Cash 1,000
Accounts Receivable 1,000
Accounting for Cash (sales) discounts
Intermediate Accounting 6 Cash and Receivables
Net price method
Continued
This time,assume that all sales on account are recording using the
net method,Again,the terms of the agreement are 2/10,n/30.
At the point of sale (March 15):
Accounts Receivable 980
Sales 980
Accounting for Cash (sales) discounts
Intermediate Accounting 6 Cash and Receivables
Net price method
If paid within the discount period:
Cash 980
Accounts Receivable 980
If not paid within the discount period:
Cash 1,000
Sales Discounts Not Taken 20
Accounts Receivable 980
Sales Returns and Allowances
Intermediate Accounting 6 Cash and Receivables
Felton Company sold $1,000 of merchandise,When delivered,it
was determined that the wrong color had been sent,The customer
agrees to keep the merchandise for a reduction in price of $100,
What are the journal entries?
Sales entry:
Accounts Receivable (Cash)....… 1,000
Sales..................................…,1,000
Sales allowance entry:
Sales Returns and Allowances..… 100
Accounts Receivable (Cash).,100
Sales Returns and Allowances
Intermediate Accounting 6 Cash and Receivables
Sales entry:
Accounts Receivable (Cash)....… 1,000
Sales..................................…,1,000
Felton Company sold $1,000 of merchandise,One week later,
when it was delivered,$100 in merchandise (cost,$60) was the
wrong color,With Felton’s approval,it was returned,What are
the journal entries?
Sales return entry:
Sales Returns and Allowances..… 100
Accounts Receivable (Cash).,100
Inventory………………………… 60
Cost of Goods Sold…………,60
6,Valuation of accounts receivable for
uncollectible accounts
Intermediate Accounting 6 Cash and Receivables
? Bad debt occur when customers do not pay for items or
services purchased on credit.
? Bad debts are uncollectible accounts receivable.
? Bad Debt Expense is reported as a selling or general and
administrative expense.
? Accounts receivable are reported on the balance sheet at
their net realizable value.
Accounting for Uncollectible Receivables
(Direct Method)
Intermediate Accounting 6 Cash and Receivables
Write Off:
Bad Debts Expense……………,400
Accounts Receivable………,400
To write off an uncollectible account.
This entry is made when the account has been determined
uncollectible,Since this determination was made after the
period in which the sale takes place,the matching principle is
violated,This method is not accepted under GAAP.
Accounting for Uncollectible Receivables
(Estimated Bad Debts Method)
Intermediate Accounting 6 Cash and Receivables
Bad debts can be estimated
based on sales or on accounts
receivable.
Estimated Bad Debts Method
Intermediate Accounting 6 Cash and Receivables
1,Relationship to sales (income statement
approach):
a,Percentage of sales
b.Percentage of net credit sales
2,Relationship to accounts receivable (balance
sheet approach):
a,Percentage of outstanding accounts
receivable
b.Aging of accounts receivable
Estimated Bad Debts Method
Intermediate Accounting 6 Cash and Receivables
In this method,an estimate of the total uncollectible accounts is
made at the end of the period,and an expense is recognized.
Bad Debts Expense………………….,2,000
Allowance for Doubtful Accounts.,2,000
To record estimated uncollectible accounts.
When the account is then determined to be uncollectible,the
write-off entry is,
Allowance for Doubtful Accounts……..,400
Accounts Receivable……………… 400
To write off an uncollectible account.
7,Generating immediate cash from
accounts receivable
Intermediate Accounting 6 Cash and Receivables
There are three basic forms of
financing agreements to obtain
cash from accounts receivable.
?Pledging
?Assigning
?Factoring
Accounts Receivable Financing Agreements
Retain Risks and
Benefits of
Ownership
Pledge
(Collateral for
Loans)
Transfer Some Risks
and Benefits of
Ownership
Assign
(Specific Receivables with
Recourse)
Transfer Risks
and Benefits of
Ownership
Factor
(Sale without
Recourse)
Intermediate Accounting 6 Cash and Receivables
Pledging
When a company pledges its accounts
receivable,it is using these accounts as
collateral for a loan,and the servicing
activities remain its responsibility.
Intermediate Accounting 6 Cash and Receivables
When a company assigns its
accounts receivable to a financial
institution,it enters into a
lending agreement with the
institution to receive cash on
specific customer accounts.
Assignment of Accounts Receivable
Intermediate Accounting 6 Cash and Receivables
When a company factors its accounts
receivable,it sells individual accounts
to a financial institution (called a
factor).
Factoring of Accounts Receivable
Intermediate Accounting 6 Cash and Receivables
Accounts
Receivable
Established
Goods and
Services ProvidedCustomers Company
Factor
Pa
ym
en
t of
A
ccou
nts
Re
ceiv
able
Factoring of Accounts Receivable
Intermediate Accounting 6 Cash and Receivables
Lee Corporation sells $80,000 of accounts receivable to a factor,
receives 90% of the value of the factored accounts,and is
charged a 15% commission based on the gross amount of
factored accounts receivable.
Factoring
Cash 60,000
Receivables from Factor 8,000
Factoring Expense 12,000
Accounts Receivable 80,000
($80,000 x,90) - $12,000
$80,000 x 0.10
$80,000 x 0.15
Intermediate Accounting 6 Cash and Receivables
8,Notes Receivable
Intermediate Accounting 6 Cash and Receivables
A note receivable is an
unconditional written agreement to
collect a certain sum of money on a
specific date.
Notes Receivable
Intermediate Accounting 6 Cash and Receivables
? They are negotiable instruments,which means that they are
legally and readily transferable among parities and may be
used to satisfy debts by the holders of these instruments.
? They usually involve interest,requiring the separation of
the receivables into its principal and interest components.
Notes receivable generally have two attributes that
are not found in accounts receivable:
Notes Receivable
Interest-Bearing
Received a $5,000,60-day,12% note on October 1,2004.
Notes Receivable 5,000
Sales 5,000
Received maturity value on December 1,2004.
Cash 5,100
Notes Receivable 5,000
Interest Revenue 100
$5,000
x 0.12 x
60/360
Intermediate Accounting 6 Cash and Receivables
Notes Receivable
Non-Interest-Bearing
Received a $5,100,60-day,non-interest-bearing note on October 1,
2004.
Notes Receivable 5,100
Interest Revenue 100
Sales 5,000
Received maturity value on December 1,2004.
Cash 5,100
Notes Receivable 5,100
Intermediate Accounting 6 Cash and Receivables
Notes Receivable Discounted
On August 1,2004,the Kasper
Corporation discounts a customer’s
note at its bank at a 14% discount
rate,The note was received from
the customer on August 1,is for 90
days,has a face value of $5,000,
and carries an interest rate of 12%.
Intermediate Accounting 6 Cash and Receivables
1,Face value of note $5,000.00
2,Interest to maturity
($5,000 x 0.12 x 90/360) 150.00
3,Maturity value of note $5,150.00
4,Discount ($5,150 x 0.14 x 60/360) (120.17)
5,Proceeds $5,029.83
6,Accrued interest revenue,$50
7,Book value of note ($5,000 + $50) (5,050.00)
8,Loss from discounting of note $ (20.17)
Notes Receivable Discounted
Intermediate Accounting 6 Cash and Receivables
Notes Receivable Discounted
October 30,2004
Notes Receivable Discounted 5,000.00
Notes Receivable 5,000.00
Cash 5029.83
Loss from Discounting of Note 20.17
Notes Receivable Discounted 5,000.00
Interest Receivable 50.00
August 31,2004
Interest Receivable 50.00
Interest Revenue 50.00
Intermediate Accounting 6 Cash and Receivables
Notes Receivable Discounted
Assume instead that on
November 3,2004 the bank
notified Kasper that the note had
not been paid and also charged
Kasper a $10 fee.
Notes Receivable Dishonored 5,160
Notes Receivable Discounted 5,000
Notes Receivable 5,000
Cash 5,160
Intermediate Accounting 6 Cash and Receivables
The End
Intermediate Accounting 6 Cash and Receivables
Receivables
Accounting School ·Zhongnan
University of Economics & Law
ntermediate
Accounting
I
中级会计学
1,Accounting for cash
Intermediate Accounting 6 Cash and Receivables
Cash is the resources
on hand to meet
planned expenditures
and emergency
situations.
Components of Cash vs,non-components
Intermediate Accounting 6 Cash and Receivables
Cash
Included in Cash Excluded from Cash
? Coins and currency
? Checking accounts
? Savings accounts
? Negotiable checks
? Bank drafts
? Certificates of deposit
? Bank overdrafts
? Postdated checks
? Travel advances
? Postage stamps
Cash and Cash Equivalents
Many companies report
investments in very short-term,
interest-earning securities as cash
equivalents in the balance sheet.
Intermediate Accounting 6 Cash and Receivables
Cash Management
Intermediate Accounting 6 Cash and Receivables
Control Over Receipts
? Immediately count the receipts (by the person
opening the mail or the sales person using the cash
register).
? Record daily all cash receipts in the accounting
records.
? Deposit daily all receipts in the company’s bank
account.
Cash Management
Intermediate Accounting 6 Cash and Receivables
Control Over Payments
? Make all payments by check (except petty cash items) so
that a record exists for every company expenditure.
? Authorize and sign all checks only after an expenditure is
verified and approved.
? Periodically reconcile the cash balance in the bank
statements with the company’s accounting records.
Petty Cash
A petty cash system is a cash fund created to allow
a company to pay for small amounts that might be
impractical or impossible to pay by check.
? The entry to record the establishment of the fund is,
Petty Cash 500
Cash 500
? The petty cash account is neither debited nor credited again
unless the fund size is to be increased or decreased,
Intermediate Accounting 6 Cash and Receivables
Petty Cash
? As money is paid from the fund,prenumbered vouchers
are prepared to document the expenditures but no journal
entries are made until the fund is reimbursed,
? At the time of reimbursement,appropriate expense
accounts are debited and the cash account is credited as
follows,
Office Supplies Expense 120
Postage Expense 150
Cash 370
Intermediate Accounting 6 Cash and Receivables
2,Bank Reconciliation
A company prepares a monthly
bank reconciliation in order to
analyze and reconcile the
differences between the cash
balance on the monthly bank
statement and the company's
accounting record of the proper
cash balance,
Intermediate Accounting 6 Cash and Receivables
Common causes of differences
Intermediate Accounting 6 Cash and Receivables
?Outstanding checks
?Deposits in transit
?Charges made by the bank
?Deposits made directly by the
bank
?Errors
Procedures in preparing a bank
reconciliation
Intermediate Accounting 6 Cash and Receivables
① Compare the deposits listed on the company's
records with the deposits on the bank statement;
② Compare the checks listed in the company's
records with the checks shown on the bank
statement;
③ Identify any deposits or charges made directly by
the bank that are not included in the company's
records;
④ Determine the effect of any errors;
⑤ Complete the bank reconciliation
Balance per books.............,$3,950
Additions to book
balance:
Direct deposit...................… 450
Interest.............................… 71
Total............................… $4,471
Deductions from book
balance:
Service charge...........… $ 7
NSF check.................… 100
Error in recording check 180 287
Adj,book balance $4,184
Balance per bank...,$4,135
Additions to bank
balance:
Deposits in transit...,500
Total..................,$4,635
Deductions from bank
balance:
Outstanding checks,
191......,$251
192......,125
195......,75 451
Adj,bank balance $4,184
Intermediate Accounting 6 Cash and Receivables
Lee Corporation
Bank Reconciliation
July 31,2005
3,Special topics
Electronic funds transfer systems
The use of computer systems to transfer funds between
parties without the use of checks,is increasingly being
used by banks to process the large number of cash
transactions generated by large companies,
Because fewer physical source documents (in the form of
checks) are available to substantiate such transactions,the
importance of internal controls,such as bank
reconciliations,is even greater,
Intermediate Accounting 6 Cash and Receivables
Special topics
Compensating balances
Banks may require a portion of any amount loaned to
remain on deposit with the bank for the duration of the loan
period,These required deposits are called compensating
balances,
SEC requires that compensating balances be separately
reported on a company's balance sheet if the compensating
balances are legally restricted,If they are not legally
restricted,they are disclosed in the notes to the financial
statements,
Intermediate Accounting 6 Cash and Receivables
4,Receivables
Receivables are all claims
against other entities,
They are usually settled in
cash.
? Trade receivables,
Receivables arising from
normal operating activities.
? Nontrade receivables,
All receivables arising
from activities other than
normal operations.
Intermediate Accounting 6 Cash and Receivables
Trade Receivables
Trade Receivables
Revenue
Recognition and
Valuation
? Normal
circumstances
? Right of return
? Valuation
? Cash discounts
? Sales returns and allowances
? Uncollectible accounts
? Financing arrangements
Recording and
Reporting Accounts
Receivable
? Interest-bearing
? Non-interest-
bearing
? Discounted
Recording and
Reporting Notes
Receivable
Intermediate Accounting 6 Cash and Receivables
Accounts receivable
Intermediate Accounting 6 Cash and Receivables
Cash (sales) discounts
,A cash (sales) discount is offered to
customers to
encourage prompt
payment of bills
Accounting for Cash (sales) discounts
Intermediate Accounting 6 Cash and Receivables
Gross price method
Assume on March 15,$1,000 of merchandise is sold on account,
The terms of the agreement are 2/10,n/30,The firm uses the
gross method for record sales on account.
Entry on date of sale:
Accounts Receivable 1,000
Sales 1,000
Continued
Accounting for Cash (sales) discounts
Intermediate Accounting 6 Cash and Receivables
Gross price method
If paid within the discount period:
Cash 980
Sales Discounts 20
Accounts Receivable 1,000
If not paid within the discount period:
Cash 1,000
Accounts Receivable 1,000
Accounting for Cash (sales) discounts
Intermediate Accounting 6 Cash and Receivables
Net price method
Continued
This time,assume that all sales on account are recording using the
net method,Again,the terms of the agreement are 2/10,n/30.
At the point of sale (March 15):
Accounts Receivable 980
Sales 980
Accounting for Cash (sales) discounts
Intermediate Accounting 6 Cash and Receivables
Net price method
If paid within the discount period:
Cash 980
Accounts Receivable 980
If not paid within the discount period:
Cash 1,000
Sales Discounts Not Taken 20
Accounts Receivable 980
Sales Returns and Allowances
Intermediate Accounting 6 Cash and Receivables
Felton Company sold $1,000 of merchandise,When delivered,it
was determined that the wrong color had been sent,The customer
agrees to keep the merchandise for a reduction in price of $100,
What are the journal entries?
Sales entry:
Accounts Receivable (Cash)....… 1,000
Sales..................................…,1,000
Sales allowance entry:
Sales Returns and Allowances..… 100
Accounts Receivable (Cash).,100
Sales Returns and Allowances
Intermediate Accounting 6 Cash and Receivables
Sales entry:
Accounts Receivable (Cash)....… 1,000
Sales..................................…,1,000
Felton Company sold $1,000 of merchandise,One week later,
when it was delivered,$100 in merchandise (cost,$60) was the
wrong color,With Felton’s approval,it was returned,What are
the journal entries?
Sales return entry:
Sales Returns and Allowances..… 100
Accounts Receivable (Cash).,100
Inventory………………………… 60
Cost of Goods Sold…………,60
6,Valuation of accounts receivable for
uncollectible accounts
Intermediate Accounting 6 Cash and Receivables
? Bad debt occur when customers do not pay for items or
services purchased on credit.
? Bad debts are uncollectible accounts receivable.
? Bad Debt Expense is reported as a selling or general and
administrative expense.
? Accounts receivable are reported on the balance sheet at
their net realizable value.
Accounting for Uncollectible Receivables
(Direct Method)
Intermediate Accounting 6 Cash and Receivables
Write Off:
Bad Debts Expense……………,400
Accounts Receivable………,400
To write off an uncollectible account.
This entry is made when the account has been determined
uncollectible,Since this determination was made after the
period in which the sale takes place,the matching principle is
violated,This method is not accepted under GAAP.
Accounting for Uncollectible Receivables
(Estimated Bad Debts Method)
Intermediate Accounting 6 Cash and Receivables
Bad debts can be estimated
based on sales or on accounts
receivable.
Estimated Bad Debts Method
Intermediate Accounting 6 Cash and Receivables
1,Relationship to sales (income statement
approach):
a,Percentage of sales
b.Percentage of net credit sales
2,Relationship to accounts receivable (balance
sheet approach):
a,Percentage of outstanding accounts
receivable
b.Aging of accounts receivable
Estimated Bad Debts Method
Intermediate Accounting 6 Cash and Receivables
In this method,an estimate of the total uncollectible accounts is
made at the end of the period,and an expense is recognized.
Bad Debts Expense………………….,2,000
Allowance for Doubtful Accounts.,2,000
To record estimated uncollectible accounts.
When the account is then determined to be uncollectible,the
write-off entry is,
Allowance for Doubtful Accounts……..,400
Accounts Receivable……………… 400
To write off an uncollectible account.
7,Generating immediate cash from
accounts receivable
Intermediate Accounting 6 Cash and Receivables
There are three basic forms of
financing agreements to obtain
cash from accounts receivable.
?Pledging
?Assigning
?Factoring
Accounts Receivable Financing Agreements
Retain Risks and
Benefits of
Ownership
Pledge
(Collateral for
Loans)
Transfer Some Risks
and Benefits of
Ownership
Assign
(Specific Receivables with
Recourse)
Transfer Risks
and Benefits of
Ownership
Factor
(Sale without
Recourse)
Intermediate Accounting 6 Cash and Receivables
Pledging
When a company pledges its accounts
receivable,it is using these accounts as
collateral for a loan,and the servicing
activities remain its responsibility.
Intermediate Accounting 6 Cash and Receivables
When a company assigns its
accounts receivable to a financial
institution,it enters into a
lending agreement with the
institution to receive cash on
specific customer accounts.
Assignment of Accounts Receivable
Intermediate Accounting 6 Cash and Receivables
When a company factors its accounts
receivable,it sells individual accounts
to a financial institution (called a
factor).
Factoring of Accounts Receivable
Intermediate Accounting 6 Cash and Receivables
Accounts
Receivable
Established
Goods and
Services ProvidedCustomers Company
Factor
Pa
ym
en
t of
A
ccou
nts
Re
ceiv
able
Factoring of Accounts Receivable
Intermediate Accounting 6 Cash and Receivables
Lee Corporation sells $80,000 of accounts receivable to a factor,
receives 90% of the value of the factored accounts,and is
charged a 15% commission based on the gross amount of
factored accounts receivable.
Factoring
Cash 60,000
Receivables from Factor 8,000
Factoring Expense 12,000
Accounts Receivable 80,000
($80,000 x,90) - $12,000
$80,000 x 0.10
$80,000 x 0.15
Intermediate Accounting 6 Cash and Receivables
8,Notes Receivable
Intermediate Accounting 6 Cash and Receivables
A note receivable is an
unconditional written agreement to
collect a certain sum of money on a
specific date.
Notes Receivable
Intermediate Accounting 6 Cash and Receivables
? They are negotiable instruments,which means that they are
legally and readily transferable among parities and may be
used to satisfy debts by the holders of these instruments.
? They usually involve interest,requiring the separation of
the receivables into its principal and interest components.
Notes receivable generally have two attributes that
are not found in accounts receivable:
Notes Receivable
Interest-Bearing
Received a $5,000,60-day,12% note on October 1,2004.
Notes Receivable 5,000
Sales 5,000
Received maturity value on December 1,2004.
Cash 5,100
Notes Receivable 5,000
Interest Revenue 100
$5,000
x 0.12 x
60/360
Intermediate Accounting 6 Cash and Receivables
Notes Receivable
Non-Interest-Bearing
Received a $5,100,60-day,non-interest-bearing note on October 1,
2004.
Notes Receivable 5,100
Interest Revenue 100
Sales 5,000
Received maturity value on December 1,2004.
Cash 5,100
Notes Receivable 5,100
Intermediate Accounting 6 Cash and Receivables
Notes Receivable Discounted
On August 1,2004,the Kasper
Corporation discounts a customer’s
note at its bank at a 14% discount
rate,The note was received from
the customer on August 1,is for 90
days,has a face value of $5,000,
and carries an interest rate of 12%.
Intermediate Accounting 6 Cash and Receivables
1,Face value of note $5,000.00
2,Interest to maturity
($5,000 x 0.12 x 90/360) 150.00
3,Maturity value of note $5,150.00
4,Discount ($5,150 x 0.14 x 60/360) (120.17)
5,Proceeds $5,029.83
6,Accrued interest revenue,$50
7,Book value of note ($5,000 + $50) (5,050.00)
8,Loss from discounting of note $ (20.17)
Notes Receivable Discounted
Intermediate Accounting 6 Cash and Receivables
Notes Receivable Discounted
October 30,2004
Notes Receivable Discounted 5,000.00
Notes Receivable 5,000.00
Cash 5029.83
Loss from Discounting of Note 20.17
Notes Receivable Discounted 5,000.00
Interest Receivable 50.00
August 31,2004
Interest Receivable 50.00
Interest Revenue 50.00
Intermediate Accounting 6 Cash and Receivables
Notes Receivable Discounted
Assume instead that on
November 3,2004 the bank
notified Kasper that the note had
not been paid and also charged
Kasper a $10 fee.
Notes Receivable Dishonored 5,160
Notes Receivable Discounted 5,000
Notes Receivable 5,000
Cash 5,160
Intermediate Accounting 6 Cash and Receivables
The End
Intermediate Accounting 6 Cash and Receivables
