Podcast
Questions and Answers
What is a maker in the context of notes?
What is a maker in the context of notes?
The maker is the individual or entity that signs a note, agreeing to pay the specified amount.
What is a payee?
What is a payee?
The payee is the individual or entity to whom the note is payable.
What is the due date of a 60-day note signed on February 15 in a non-leap year?
What is the due date of a 60-day note signed on February 15 in a non-leap year?
April 16
How much interest will be due on a $2,000, 60-day, 6% note as of October 20?
How much interest will be due on a $2,000, 60-day, 6% note as of October 20?
What is the formula to compute interest due on a maturity date?
What is the formula to compute interest due on a maturity date?
What is the due date of a 90-day note signed on October 21?
What is the due date of a 90-day note signed on October 21?
What would the journal entry include for selling $5,000 in merchandise with a 90-day, 5% promissory note?
What would the journal entry include for selling $5,000 in merchandise with a 90-day, 5% promissory note?
How much interest will be due on a $5,000, 90-day, 4% note on its maturity date?
How much interest will be due on a $5,000, 90-day, 4% note on its maturity date?
What journal entry does Franz Co. make when Bria Co. pays a 30-day, 6% note of $5,000?
What journal entry does Franz Co. make when Bria Co. pays a 30-day, 6% note of $5,000?
To compute interest due on a maturity date, which factors should be multiplied?
To compute interest due on a maturity date, which factors should be multiplied?
A note is honored when it is paid in full.
A note is honored when it is paid in full.
What would Eli's journal entry include after receiving a 60-day, 6% note for $6,000?
What would Eli's journal entry include after receiving a 60-day, 6% note for $6,000?
What would JC Co.'s debit entry include when receiving a 60-day, 6% note for $10,000?
What would JC Co.'s debit entry include when receiving a 60-day, 6% note for $10,000?
The maker of the note usually ______ the note and pays it in full.
The maker of the note usually ______ the note and pays it in full.
When a note's maker is unable or refuses to pay at maturity, the note is considered ______.
When a note's maker is unable or refuses to pay at maturity, the note is considered ______.
What journal entry does Zest Co. make when AZC dishonors a 120-day, 6% note?
What journal entry does Zest Co. make when AZC dishonors a 120-day, 6% note?
How much interest would be recorded on December 31 for a $12,000, 60-day, 6% note?
How much interest would be recorded on December 31 for a $12,000, 60-day, 6% note?
What entries would appear on January 30 for Christy Co. after honoring a $1,000 note?
What entries would appear on January 30 for Christy Co. after honoring a $1,000 note?
When the maker of a note pays at maturity, the note is said to be dishonored.
When the maker of a note pays at maturity, the note is said to be dishonored.
What journal entry does Horn Co. make when a customer dishonors a 60-day, 5% note for $3,000?
What journal entry does Horn Co. make when a customer dishonors a 60-day, 5% note for $3,000?
What adjusting entry does Lion Company make on December 31 for a $15,000, 30-day, 6% note?
What adjusting entry does Lion Company make on December 31 for a $15,000, 30-day, 6% note?
What entry includes the credit to Interest Revenue for $200 when a note is honored?
What entry includes the credit to Interest Revenue for $200 when a note is honored?
What journal entry includes a credit to Notes Receivable for $2,000 on January 30?
What journal entry includes a credit to Notes Receivable for $2,000 on January 30?
What entry does Ian Co. make when Ali dishonors a 180-day, 5% note?
What entry does Ian Co. make when Ali dishonors a 180-day, 5% note?
What is the result of converting receivables to cash before they are due?
What is the result of converting receivables to cash before they are due?
When a company sells its receivables, it is called:
When a company sells its receivables, it is called:
When a company uses receivables as collateral for a bank loan, it is called:
When a company uses receivables as collateral for a bank loan, it is called:
What should Avi Co. record when pledging $12,000 accounts receivables for a $10,000 loan?
What should Avi Co. record when pledging $12,000 accounts receivables for a $10,000 loan?
What is the formula for calculating accounts receivable turnover?
What is the formula for calculating accounts receivable turnover?
Compute accounts receivable turnover for Siu Co. in 2010 given net sales of $160,000 and accounts receivable of $38,000.
Compute accounts receivable turnover for Siu Co. in 2010 given net sales of $160,000 and accounts receivable of $38,000.
The two methods companies can use to convert receivables to cash before they are due include selling and pledging.
The two methods companies can use to convert receivables to cash before they are due include selling and pledging.
What would the entry be for Tricon Co. selling $10,000 of accounts receivables with a 5% factoring fee?
What would the entry be for Tricon Co. selling $10,000 of accounts receivables with a 5% factoring fee?
When a company's receivables are used as security for a loan, the company is said to have ______ its receivables.
When a company's receivables are used as security for a loan, the company is said to have ______ its receivables.
The ______ ratio indicates the quality and liquidity of accounts receivable.
The ______ ratio indicates the quality and liquidity of accounts receivable.
If a company has net sales of $250,000 and average receivables of $10,000, the accounts receivable turnover is ______.
If a company has net sales of $250,000 and average receivables of $10,000, the accounts receivable turnover is ______.
The two most common receivables are BLANK receivables and BLANK receivables.
The two most common receivables are BLANK receivables and BLANK receivables.
A(n) ____________ is a supplementary record created to maintain a separate account for each customer.
A(n) ____________ is a supplementary record created to maintain a separate account for each customer.
The journal entry to record a sale on credit would include a debit entry to the Accounts BLANK account.
The journal entry to record a sale on credit would include a debit entry to the Accounts BLANK account.
The entry that Lane Co. will make to record the receipt of cash will include a credit to the BLANK account.
The entry that Lane Co. will make to record the receipt of cash will include a credit to the BLANK account.
What would the entry to record merchandise sold for $1,000 on a credit card include?
What would the entry to record merchandise sold for $1,000 on a credit card include?
Match the following terms with their definitions:
Match the following terms with their definitions:
An accounts receivable ledger is a supplementary record to maintain an account for each customer.
An accounts receivable ledger is a supplementary record to maintain an account for each customer.
Ace Company sells merchandise to a customer in the amount of $200 on credit, terms n/30. The entry to record this sale would include a debit to the BLANK account.
Ace Company sells merchandise to a customer in the amount of $200 on credit, terms n/30. The entry to record this sale would include a debit to the BLANK account.
How should Iron Company record the collection of cash from a customer who purchased merchandise last month on credit?
How should Iron Company record the collection of cash from a customer who purchased merchandise last month on credit?
What would Simon Co.'s entry include when selling $500 of merchandise on store credit cards?
What would Simon Co.'s entry include when selling $500 of merchandise on store credit cards?
A BLANK is an amount due from another party.
A BLANK is an amount due from another party.
A(n) BLANK is a supplementary record created to maintain a separate account for each customer.
A(n) BLANK is a supplementary record created to maintain a separate account for each customer.
To record a sale on account, the company should debit:
To record a sale on account, the company should debit:
Companies allow customers to pay for products using third-party credit cards because:
Companies allow customers to pay for products using third-party credit cards because:
What entry would Yao Co. make when collecting $740 from Ean, Inc. for a prior credit sale?
What entry would Yao Co. make when collecting $740 from Ean, Inc. for a prior credit sale?
What would JD Co.'s entry include when it had $1,000 of credit card sales?
What would JD Co.'s entry include when it had $1,000 of credit card sales?
To record a customer's check in full payment for a sale that was made the prior month, the company should debit the BLANK account.
To record a customer's check in full payment for a sale that was made the prior month, the company should debit the BLANK account.
(Bad/Invalid) (collectible/debts) are accounts of customers who do not pay what they have promised to pay.
(Bad/Invalid) (collectible/debts) are accounts of customers who do not pay what they have promised to pay.
Bad debts are:
Bad debts are:
How would Harris Co. record the write-off of a $200 uncollectible account?
How would Harris Co. record the write-off of a $200 uncollectible account?
What entry would J. Whitlock Co. include when recording $1,000 of credit card sales?
What entry would J. Whitlock Co. include when recording $1,000 of credit card sales?
To record the sales transaction of $1,000 on a bank credit card less a 3% fee, the entry would include a debit to Cash in the amount of $.
To record the sales transaction of $1,000 on a bank credit card less a 3% fee, the entry would include a debit to Cash in the amount of $.
What entry should be made when a previously written-off account is later collected?
What entry should be made when a previously written-off account is later collected?
The allowance method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.
The allowance method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.
The direct write-off method records bad debts expense only when an account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method violates the BLANK BLANK principle.
The direct write-off method records bad debts expense only when an account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method violates the BLANK BLANK principle.
The BLANK method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.
The BLANK method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.
What is the total decrease to net income related to JD Co.'s entry for $200 bad debt write-off?
What is the total decrease to net income related to JD Co.'s entry for $200 bad debt write-off?
The allowances of accounting for bad debts include which of the following?
The allowances of accounting for bad debts include which of the following?
What would the entry include for Finish Co. to record estimated bad debts?
What would the entry include for Finish Co. to record estimated bad debts?
What entry would Lani Co. make when recording estimated bad debts based on 1% of accounts receivable?
What entry would Lani Co. make when recording estimated bad debts based on 1% of accounts receivable?
When Acel Co. previously wrote off a $400 bad debt from CTR, Inc., what would the entries to record the receipt of cash on October 21 include?
When Acel Co. previously wrote off a $400 bad debt from CTR, Inc., what would the entries to record the receipt of cash on October 21 include?
What entry would Avis Company record to adjust for the estimated uncollectible accounts?
What entry would Avis Company record to adjust for the estimated uncollectible accounts?
What would Flash Co. record for estimated bad debts that amount to $7,500?
What would Flash Co. record for estimated bad debts that amount to $7,500?
What entry would Ana Co. record for estimated bad debts amounting to $500?
What entry would Ana Co. record for estimated bad debts amounting to $500?
The BLANK method uses several percentages to estimate the allowance.
The BLANK method uses several percentages to estimate the allowance.
What would Yates Co. record as estimated bad debts based on 1% of sales?
What would Yates Co. record as estimated bad debts based on 1% of sales?
The BLANK method, also referred to as balance sheet method, uses balance sheet relations to estimate bad debts.
The BLANK method, also referred to as balance sheet method, uses balance sheet relations to estimate bad debts.
What entry would DVS Company record for their adjusting entry estimating $2,500 of uncollectible accounts?
What entry would DVS Company record for their adjusting entry estimating $2,500 of uncollectible accounts?
The BLANK method of estimating bad debts uses both past and current receivables information.
The BLANK method of estimating bad debts uses both past and current receivables information.
The (maker/signer) of the note is the one that signed the note and promised to pay at maturity.
The (maker/signer) of the note is the one that signed the note and promised to pay at maturity.
Match the following terms with their definitions:
Match the following terms with their definitions:
Study Notes
Receivables
- Common types of receivables: Accounts Receivable and Notes Receivable.
- Accounts Receivable represents amounts due from customers for goods sold on credit.
- Notes Receivable is a formal written promise for a specified amount to be paid on demand or a future date.
Accounts Receivable Ledger
- An accounts receivable ledger maintains a separate account for each customer, recording transactions affecting accounts receivable.
Journal Entries for Sales and Collections
- Sale on credit requires a debit to Accounts Receivable.
- When payment is received, a credit to Accounts Receivable reflects that the company has collected the owed amount.
- For credit card sales, both Sales and Accounts Receivable accounts are debited by the transaction amount.
Bad Debts and Write-Offs
- Bad debts are amounts customers failed to pay, which become an expense for the seller.
- The direct write-off method records bad debts only when an account is deemed uncollectible.
- The allowance method estimates uncollectible accounts before they are confirmed.
Accounting for Bad Debts
- The Allowance for Doubtful Accounts is a contra asset account, with normal credit balances representing total uncollectible accounts.
- Under the allowance method, bad debt expense is recorded using percentages of either sales or accounts receivable.
Interest Calculations
- Interest on notes is computed using the formula: principal x interest rate x time (in fraction of a year).
- Notes can have various maturity dates determined by the duration agreed upon, such as 30, 60, or 90 days.
Payment Entries for Notes
- Upon maturity of a note, the company records cash received, interest revenue, and the reduction of the Notes Receivable account.
- When a previously written-off account is collected, it is reinstated, and the cash receipt is recorded.
Materiality Constraint
- Materiality permits the use of the direct write-off method for small amounts relative to financial statements, allowing simplified accounting practices.
Summary of Methods
- Allowance Method: Matches estimated bad debt expense to related sales, increasing accuracy in financial reporting.
- Direct Write-Off Method: Records bad debts only when confirmed uncollectible, potentially violating the matching principle.
Important Entries and Calculations
- Entries for writing off bad debts include debiting Bad Debts Expense and crediting Accounts Receivable or Allowance for Doubtful Accounts depending on the method.
- To adjust for estimated bad debts, companies calculate based on either total sales or outstanding accounts receivable balances.
Promissory Notes
- A promissory note details the principal amount, interest due, maker, payee, and maturity date.
- Proper documentation and accounting of promissory notes ensure clarity in receivables management.
Overall Importance
- Understanding receivables and their management is crucial for maintaining accurate financial records and ensuring cash flow stability within a business.### Interest Calculation and Notes
- To compute interest due on a maturity date, multiply the principal, interest rate, and the time expressed as a fraction of the year.
- A note is considered honored when it is paid in full.
- Journal entries for notes include debiting Notes Receivable and crediting Accounts Receivable upon receipt.
Journal Entries for Notes
- If a note is honored at maturity, record cash received including principal and accrued interest.
- If a note is dishonored, debit Accounts Receivable for the amount of the note plus accrued interest, reflecting the failed payment.
- Adjusting entries require recognition of earned interest revenue for notes receivable at year-end.
Dishonor of Notes
- A note is labeled as dishonored when the maker fails to pay at maturity.
- If dishonored, companies adjust their accounts by converting the note into an Accounts Receivable account.
Interest Calculations
- Interest for notes can be calculated using the formula: Interest = Principal x Rate x (Time/360).
- Adjusting entries for notes may include debits to Interest Receivable for accrued interest.
Pledging and Factoring Receivables
- Companies convert receivables to cash by selling them (factoring) or using them as loan security (pledging).
- Factoring refers to selling receivables, while pledging means using them as collateral.
- Recording a loan with pledged receivables includes a note payable and a footnote in financial statements regarding the receivables pledged.
Accounts Receivable Turnover
- Accounts Receivable Turnover is calculated as Net Sales divided by Average Accounts Receivable.
- A higher turnover ratio indicates effective management of receivables and cash flow efficiency.
Example Calculations
- For Siu Co., accounts receivable turnover for 2010 is 4.6, calculated using 2010 Net Sales and the average of 2010 and 2009 receivables.
- Companies often face factoring fees, reducing the cash received from sold receivables; for example, a 5% fee on $10,000 results in a net cash receipt of $9,500.
Miscellaneous Insights
- It is crucial for companies to document any pledging of receivables for compliance with the full disclosure principle in financial reporting.
- The concept of honoring or dishonoring notes is fundamental within accounting practices related to timeliness and accountability of payments.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your knowledge on financial notes and interest calculations with this quiz. It covers various scenarios, including due dates and interest payments. Perfect for finance students looking to reinforce their understanding of these concepts.
