week 9(1) (1)

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WEEK 9

Accounting forReceivables

Accounting for Payables

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LEARNING OBJE!I"E#

$% &e'ne t(e )i*erent ty+es of receivables

,% &e'ne accounts receivable- an) )iscuss (o.accounting recognises an) values t(e/

0% E1+lain t(e nature of ba) an) )oubtful )ebtsan) (o. to account for t(e/

2% I)entify t(e +rinci+les involve) in t(e/anage/ent an) control of accounts

receivable3% &escribe t(e nature of bills receivable an) (o.

to account for t(e/

4% urrent Liabilities5 Accounting for Bills

Payables- Warranties an) E/+loyee bene'ts

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!6PE# O7 REEI"ABLE#

Accounts Receivable Specifcally relate to the sale o goods or provision

o services

Bills Receivable More ormal arrangement than account receivable

Mostly used or fnancing purposes

Ot(er Receivables Similar to accounts receivable but not related to

goods or services Loans to directors

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AO8N!# REEI"ABLE

Also no.n as !ra)e &ebtors

Recognition Usually at time o sale

Need to consider discounts and allowances

"aluation Not all amounts owing will be collected

Need to account or estimate o amountthat will become bad

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BA& AN& &O8B!78L&EB!#

Ris of )oing business on cre)it

:ini/ise) t(roug( cre)it c(ecs

8n+ai) a/ounts re+resent abusiness e1+ense

Written o* +erio)ically

!.o /et(o)s to account for ba))ebts Allowance method

Direct write-o method

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AO8N!ING 7OR BA&

&EB!# Esti/ate of )oubtful )ebts /a)eat t(e en) of t(e +erio)

A)

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ALLOWANE :E!;O& O7AO8N!ING 7OR BA& &EB!#

Recor)s t(e e1+ense in sa/e+erio) as t(e inco/e to .(ic( itrelates

reates an allo.ance t(at .ill be)e)ucte) fro/ accounts receivableon t(e balance s(eet

=ontra> asset account

AA#B $0? Provisions, ContingentLiabilities and Contingent Assets

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ALLOWANE :E!;O& O7AO8N!ING 7OR BA& &EB!#

L!&Balance #(eet @+artial

as at 0 June ,$0

*U++%N, ASS%,S

*ash at ban . /0 /##

Accounts +eceivable .11# ###

Less2 Allowance or doubtul debts ' ### 1#3 ###

4nventory 51 ###

,6,AL *U++%N, ASS%,S .7"" /##

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E#!I:A!ING &O8B!78L &EB!#

Generally base) on co/bination of 8ast e&perience

9orecasts o uture economic and businessconditions

Involves consi)erable )egree of

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PEREN!AGE O7NE! RE&I! #ALE# :E!;O&

;istory of ba) )ebts is analyse) toestablis( relations(i+ bet.eencre)it sales an) ba) )ebts

G#! is e1clu)e) fro/ calculation

6ear5en) a)

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AGEING O7 AO8N!# REEI"ABLE:E!;O&

Base) on lengt( of ti/e o.ing

Ol)er accounts statistically /ore liely tobe ba)

Past accounting recor)s analyse) alculates t(e a/ount t(e allo.ance for

)oubtful )ebts shouldbe- t(erefore .(atis recor)e) is an a)

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ECA:PLE 5 AGEING O7 AO8N!#REEI"ABLE :E!;O&

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1"

Esti/ate) ba))ebts a/t

Age ategory A/ount D A/ount

Not yet due .'1 '## 1 . '1'

1-"# daysoverdue

11 ''# / /0"

"1-'# daysoverdue

5 7'# 1# 57'

'1-=# daysoverdue

3 '7# 7# =73

=1-10# daysoverdue

3 10# "# 1 7/3

6ver 10# days 7 '3# '# 1 /03Percentage is

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!otal esti/ate to beco/e ba) of34F? inclu)es 3$? @$$$ of G#!

.(ic( is e1clu)e) fro/ t(eallo.ance

Assu/e e1isting allo.ance is$32

!o+5u+ nee)e) is 3$? 5 $32 H040

General Journal

!une"#

Doubtul Debts %&pense " '"#

Allowance or Doubtul Debts " '"#

($ad debts e&pense or the year)

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Allo.ance for &oubtful &ebts

$alance c>d/ 15#/ 15#

$alance (beore ad?ustment)1 /3#

$ad Debts %&pense" '"#

/ 15#$alance b>d

/ 15#

,-Account impact

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E1ercise $

Kerries aes Lt) bases t(eir esti/ation of t(eyears ba) )ebt e1+ense on ,D of net cre)itsales% !(e follo.ing infor/ation is su++lie)

6pening balance in Allowance account is .7:1##cr

Sales or the year are .0##:### (e&cl

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E1ercise ,

Kerries aes Lt) bases t(eir esti/ate of ba))ebt e1+ense as ,D of t(eir accounts receivablebalance

6pening balance in Allowance account is .7:1##cr

Sales or the year are .0##:### (e&cl

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o/+are t(e t.o !accounts

10

Allo.ance for&oubtful )ebts N#

$?,$

$o+en

bal ,-$

Ba) )ebte1+ense M$3-

04,$,los bal$?-$

$?-$

$?-$

Allo.ance for

&oubtful )ebts

Ageing

/et(o)

$?,$

$o+en

bal ,-$

Ba) )ebte1+ense M?-9

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&IRE! WRI!E5O77 :E!;O&5W;EN !;ERE I# NO ALLOWANE AO8N!

$ad debts charged to e&pensewhendebt is considered uncollectable

No allowance or doubtul debts ismade beorehand

1=

General Journal

!ul "1 Ba) &ebts E1+ense '7#

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WRI!ING O77 BA&&EB!#

Allo.ance for &oubtful &ebts

Accounts +eceivable *ontrol>@ ! %vans

'7#$alance c>d

3 //#/ 15#

$alance (beore write-o)/ 15#

CCC C/ 15#

$alance b>d

3 //#

Accounts Receivable ontrol

$alance (beore write-o)=1 ='#

C C=1 ='#

$alance b>d=1 750

Allowance or Doubtul Debtsand

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REO"ER6 O7 AN AO8N!WRI!!EN O775 W;EN OL&8#!O:ER PA6#

Need to update subsidiary ledger andrecord cash receipt

+ecovery treated as revenue

71

General Journal

Nov 3 Accounts +eceivable *ontrol@!%vans

75/

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E1ercise 0

errieEs *aes Ltd has a debtor M Dodgy whohas not paid their account %nFuiries showthat the debtor is insolvent (no money)

6n 5>5>17 errie writes o M DodgyEs accountbalance o .'1'## ( including

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E1ercise 2

6n 1#th!anuary 7#1" M Dodgy pays7#; o the amount outstanding ,here isno urther e&pectation o any monies

rom Dodgy

Reuire) Recor) t(e

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BILL# REEI"ABLE

8se) for e1ten)ing cre)it beyon)nor/al tra)ing transactions

Bills of E1c(ange Act $99,rade bills

8romissory notes

Nee) to be able to Determine due date

*alculate interest on bills and notes

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ECA:PLE O7 !RA&E BILL AN&PRO:I##OR6 NO!E

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ECA:PLE AO8N!ING 7ORREEIP! O7 BILL REEI"ABLE

Recei+t of bill in settle/ent ofover)ue account receivable fro/&% :ea)

$3- 95)ay bill at $3D interestGeneral Journal!ul = $ills +eceivable 1

///30

Accounts +eceivable @ DMead

1/####

Unearned 4nterest 4ncome //30

(+eceipt o a note in settlemento an account receivable)

G4nterest H .1/## & #1/ &=#>"'/I

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ECA:PLE AO8N!ING 7OROLLE!ION O7 BILL REEI"ABLE

Recei+t of cas( on +ay/ent of t(enote by t(e )ebtor at /aturity)ate General Journal

6ct 5 *ash at $an 1///30

$ills +eceivable 1///30

(*ollection o promissory note @DMead)

Unearned 4nterest 4ncome //30

4nterest 4ncome //30

(4nterest earned on note @

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8RREN! LIABILI!IE#

Accounts +ayable @tra)e cre)itors Amounts owed or purchase o inventory:

supplies and services as part o the

business operating cycle Bills +ayable

%videnced by a bill o e&change o a

promissory note,rade bills

*ommercial bills

70

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ECA:PLE BILL#PA6ABLE

$D Ltd previously purchased inventoryrom+ Smith on credit or .3### 6n 1

August: Smith agreed to accept a =#-day: 1#; bill to cover account payable

7=

General Journal

Aug 1 Accounts Payable R% #/it( 3#####

Une&pired 4nterest =0'"

$ills 8ayable 3#=0'"

(+eceipt o bill or Account payable)

G4nterest H .3### & #1# & =#>"'/I

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LIABILI!IE# 5E:PLO6EE BENE7I!#

Amounts deducted rom an employeeEsgross pay are liabilities o theemployer: who acts as a collection

agent or various organisations

"#

General Journal

!un70

Bages and Salaries %&pense " '/#

8AJ< 8ayable 530

$, Superannuation 9und payable 1=1

AAM4 4nsurance Ltd payable =#

K*9 Medical 9und payable 150

Bages and Salaries 8ayable 7 33"

(8ayroll or the wee ending 70 !une)

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WARRAN!IE#

#et u+ a +rovision account .(ic( is anesti/ate of future obligations for inventorysol)

Any .arranty returns are )ebite) to t(e

+rovision account

"1

General Journal

!un"#

Barranty %&pense 5# ###

8rovision or Barranties 5# ###

(8rovision or warranty e&penserelated to sales made in the yearended "# !une)

!ul 1/ Provision for Warranties "/#

h

week 9(1) (1)

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