Financial Accounting

IFRS 4th Edition

Weygandt ● Kimmel ● Kieso

Chapter 8
Accounting for Receivables
Chapter Outline:
Learning Objectives
LO 1 Explain how companies recognize (認列) accounts
receivable.
LO 2 Describe how companies value (評價) accounts
receivable and record their disposition (除列).
LO 3 Explain how companies recognize, value, and
dispose of notes receivable.
LO 4 Describe the statement presentation and analysis
of receivables.
Copyright ©2019 John Wiley & Sons, Inc. 2
Learning Objective 1
Explain How Companies Recognize
Accounts Receivable

Copyright ©2019 John Wiley & Sons, Inc. 3

 "Required amounts"
Principle (expense and recognized together at the same period of times Allowance for Doubtful Accounts +
Matching Revenue must be
= Allowance for Doubtful Accounts

accounts is known
(1) Direct method /recorded when uncollectible
+ Estimate Bad debt Expense
Existing
$10R 5)
lo uncollectible [in contract to matching principle) -
Accounts Receivable become uncollectible
Balances
I
+ Recovery of uncollectible accounts

sales $100
t+ 1

Bad debt expense $10 $ 2, 228" = $520 + BDE

BDE = $1 , 700
the year will estimate the uncollectible bad dept expense as
(4) Allowance method (everyendof $2 , 218 = -
$500 + Bad Debt Expense

- Aexpec Bad Debt Expense = $2 , 728

I
I

>
-
his pake allowance method
sales $100 are a se
Bad debt $10] assongastheyo
especific time doesn't

% $0 , 000
200 ,
000X4
=

3 ,
3%

Ending allowance
Direct method Allowance method

1, 000 1, 000
① sold products Accounts receivable
XXX,,000
Accounts Receivable xXx 10
in year t * XX
sales sales

& The end of

uncollectibleaccount
Estimate amount of a
No entry
year t Bad debt expense

#/c $1 , 000 Account

B/s
-
AR

allowance
$1 , 000 -> $1 , 000

AlowunurDoubtful 100
End Allowance :
Beg . Allowance + estimate Bad debt expense -
Bad debts Written off + Recovery of uncollectible accounts

③
Baddebtexpe, a
Accounts , 000
+ 1 , 000
Allowance for Doubtful Accounts XX 100 $200 , 000 x4 % =
,
5 000 + 7, 000 -
5
become
Receivable Accounts receivable XXX =
$8 , 000

year + 1 $1 , 000 + 7 , 000

in $ 1 , 000 $100 $900 $8 , 000
+
-
= =

Arw ,- $100 $100 = 0

-

8/10 Allowance for Doubtful accounts 1 , 000

① Recovery of Accounts Receivable XXX Accounts Receivable XXX Accounts Receivable -

She long 1 , 000

an uncollectible Bad debt expense XXX Allowance for doubtful XXX

9) doubtful accounts 4 , 000
accounts Accounts /12 Allowance for
4 , 000
t +1 Accounts Receivable - Tom Woods

Accounts ReceivableshecanStent
10/10 1 , 000
cash XXX casn
XXXXXX 1 , 000

Accounts Receivable XXX Accounts receivable

cash 558

Accounts Receivable 558

11/15 cash 458

receivable 458
Direct Method Allowance Method Accounts

A B A B (b) 1431 Bad debt expense 7

, 000

$1 , 008 $1 , 100 Allowance for doubtful Account 7 , 000

AR $1 , 000 $10 , 000
-

Allowance (100) (9,000)

() Allowance for doubtful accounts Dec 31 , 2020
1, 000 1 , 000
$200 , 000x4 %

B/S Allowance 2010 :

Allowancecolg + Bad debt expense
$8 , 000 = $5, 000 + 7 , 000
Accounts Receivable $1 , 000 10 %
-
written off + Recovery
less : Allowance for
$5 , 000 + $1 , 000
cl00]
-

doubtful Accounts
$900
Recognition of Accounts Receivables (p.2) (1 of 2)
• The term receivables refers to amounts due from
individuals and companies Amounts due to> payable

• Receivables are claims that are expected to be

collected in cash
• Management of receivables is a very important
activity for any company that sells goods or services
on credit
• Receivables are important because they represent
one of a company’s most liquid assets

Copyright ©2019 John Wiley & Sons, Inc. 4

Recognition of Accounts Receivables (p.3)(2 of 2)
Amounts due from individuals and companies that are expected to
be collected in cash.

Receivables as a Company
Company Percentage of Total Assets
Adidas (DEU) 16%
Hyundai (KOR) 5
Samsung (KOR) 13
Nestlé (CHE) 41
China Mobile Limited (HKG) 2

Copyright ©2019 John Wiley & Sons, Inc. 5

Types of Receivables p.3 (1 of 2)
Amounts due from individuals and companies that are expected to
be collected in cash.

Amounts customers Written promise Nontrade receivables

owe on account that (formal instrument) such as interest,
result from the sale for amount to be loans to officers,
of goods and received. Normally advances to
services. requires the employees, and
collection of income taxes
interest. refundable.
Accounts Notes Other
Receivable Receivable Receivables

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Trade receivable (related to the business)
Recognizing Accounts Receivable p.3 (1 of 5)
• Service organization records a receivable when it
performs service on account
• Merchandiser records accounts receivable at point of
sale of merchandise on account
• Seller may offer a discount to encourage early
payment
• Buyer might return goods found to be unacceptable
 Sales returns reduce receivables

Copyright ©2019 John Wiley & Sons, Inc. 7

Recognizing Accounts Receivable p.3 (2 of 5)
Illustration: Assume that Zhang Ltd. on July 1, 2020, sells
merchandise on account to Li Stores for ¥1,000, terms 2/10,
n/30 (amounts in thousands). On July 5, Li returns
merchandise with a sales price of ¥100 to Zhang. Prepare the
journal entries to record these transactions.
Jul. 1 Accounts Receivable 1,000
Sales Revenue 1,000
Jul. 5 Sales Returns and Allowances 100
Accounts Receivable 100

Copyright ©2019 John Wiley & Sons, Inc. 8

Recognizing Accounts Receivable p.3 (3 of 5)
Illustration: On July 11, Zhang receives payment from Li for
the balance due. Prepare the journal entry to record this
transaction.

Jul. 11 Cash (¥900 − ¥18) 882

Sales Discounts (¥900 x .02) 18
Accounts Receivable 900

Copyright ©2019 John Wiley & Sons, Inc. 9

Recognizing Accounts Receivable p.4 (4 of 5)
X

Illustration: Some retailers issue their own credit cards. When

you use a retailer’s credit card (IKEA, for example), the retailer
charges interest on the balance due if not paid within a
specified period (usually 25–30 days).
Illustration: Assume you use your IKEA credit card to purchase
clothing with a sales price of €300 on June 1, 2020. The entry
is recorded as follows.

Jun. 1 Accounts Receivable 300

Sales Revenue 300

Copyright ©2019 John Wiley & Sons, Inc. 10

Recognizing Accounts Receivable p.4 (5 of 5)
Illustration: Assuming that you owe €300 at the end of the
month and IKEA charges 1.5% per month on the balance due,
the adjusting entry that IKEA makes to record interest revenue
of €4.50 (€300 × 1.5%) on June 30 is as follows.

June 30 Accounts Receivable 4.50

Interest Revenue 4.50

Copyright ©2019 John Wiley & Sons, Inc. 11

Learning Objective 2
Describe How Companies Value
Accounts Receivable and Record Their
Disposition

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Valuation of Accounts Receivable p.5
Valuing Accounts Receivable
unable to chargeback
AR-charge back spend-
• Current asset
• Valuation (net realizable value)
Uncollectible Accounts Receivable (無法收回的應收帳款)
• Sales on account raise possibility of accounts not
being collected
• Seller records losses that result from extending
credit as Bad Debt Expense (壞帳費用)
# (Incrome statementy

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Accounting for Uncollectible Accounts P.5
Direct Write-Off Method (直接法) Accounting standars don't
allow
• No matching of expenses with revenues
• Receivable not stated at net realizable value
• Not acceptable for financial reporting purposes
Allowance Method (備抵法)
• Better matching of expenses with revenues
• Receivable stated at cash (net) realizable value
• Required for financial reporting purposes

Copyright ©2019 John Wiley & Sons, Inc. 14

Direct Write-Off Method for
Uncollectible Accounts
Illustration: Assume that Warden Co. writes off M. E. Doran’s
NT$1600 balance as uncollectible on December 12. Warden’s
entry is as follows.
Bad Debt Expense 1,600
Accounts Receivable 1,600

Unless bad debt losses are insignificant, the direct write-off

method is not acceptable for financial reporting purposes.

Copyright ©2019 John Wiley & Sons, Inc. 15

Allowance Method for Uncollectible
Accounts p.6
1. Companies estimate uncollectible accounts
receivable.
2. Debit Bad Debt Expense and credit Allowance for
Doubtful Accounts (a contra-asset account).
3. Companies debit Allowance for Doubtful Accounts
and credit Accounts Receivable at the time the
specific account is written off as uncollectible.

Copyright ©2019 John Wiley & Sons, Inc. 16

Allowance Method for Uncollectibles p.6 (1 of 5)

Recording Estimated Uncollectibles 估計壞帳

Illustration: Hampson Furniture has credit sales of €1,200,000
in 2020, of which €200,000 remains uncollected at December
31. The credit manager estimates that €12,000 of these sales
will be uncollectible.
Dec. 31 Bad Debt Expense 12,000
Allowance for Doubtful Accounts 12,000

Copyright ©2019 John Wiley & Sons, Inc. 17

Allowance Method for Uncollectibles p.7
(2 of 5)

Hampson Furniture
Statement of Financial Position (partial)
Current Assets Blank Blank

Supplies Blank € 25,000

Inventory Blank 310,000
Accounts receivable €200,000 188,000
Allowance for doubtful accounts 12,000 Blank

Cash Blank 14,800

Total current assets Blank €537,800

Copyright ©2019 John Wiley & Sons, Inc. 18

 Valuing Accounts Receivable
Alternate
Presentation
Hampson Furniture
Statement of Financial Position (partial)
Current Assets
Supplies € 25,000
Inventory 310,000
Accounts receivable, net of €12,000 allowance 188,000
Cash 14,800
Total current assets €537,800

LO 2 Copyright ©2019 John Wiley & Son, Inc. 19

Allowance Method for Uncollectibles p.7
(3 of 5)

Illustration: The financial vice president of Hampson Furniture

authorizes a write-off (沖銷) of the €500 balance owed by R.
A. Ware on March 1, 2021. The entry to record the write-off is
as follows. 沖銷無法收回的壞帳
Mar. 1 Allowance for Doubtful Accounts 500
Accounts Receivable 500

Accounts Receivable Allowance for Doubtful Accounts

Jan. 1 Bal. 200,000 Mar. 1 500 Mar. 1 500 Jan. 1 Bal. 12,000
Mar. 1 Bal. 199,500 Mar. 1 Bal. 11,500

Copyright ©2019 John Wiley & Son, Inc. 20

Allowance Method for Uncollectibles p.8
(4 of 5)

Recovery of an Uncollectible Account 已沖銷壞帳又收回

Illustration: On July 1, R. A. Ware pays the €500 amount that
Hampson had written off on March 1. Hampson makes the
following entries.

July 1 Accounts Receivable 500

Allowance for Doubtful Accounts 500
July 1 Cash 500
Accounts Receivable 500

Copyright ©2019 John Wiley & Sons, Inc. 21

Estimating the Allowance p.8 (1 of 4)
估計壞帳的方法
Frequently, companies estimate the allowance as a
percentage of the outstanding receivables.
Percentage-of-Receivables Basis 應收帳款百分比法
• Management establishes a percentage relationship
between amount of receivables and expected losses
from uncollectible accounts
• Amount of bad debt expense that should be recorded
is difference between required balance and existing
balance in allowance account

Copyright ©2019 John Wiley & Sons, Inc. 22

Estimating the Allowance (2 of 4)
Accounts Receivable Aging Schedule
Number of Days Past Due
Not yet
Customer Total Due 1-30 31-60 61-90 Over 90
T.E. Adert ¥ 600 ¥ 300 ¥ 200 ¥ 100
R.C. Bortz 300 ¥ 300
B.A. Carl 450 200 ¥ 250
O.L. Diker 700 500 200
T.O. Ebbet 600 300 300
Others 36,950 26,200 5,200 2,450 1,600 1,500
¥39,600 ¥27,000 ¥5,700 ¥3,000 ¥2,000 ¥1,900
Estimated %
uncollectible 2% 4% 10% 20% 40%
Total estimated
uncollectible ¥2,228 ¥540 ¥228 ¥300 ¥400 ¥760
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Estimating the Allowance p.9 (3 of 4)
Illustration: The unadjusted trial balance shows Allowance
for Doubtful Accounts with a credit balance of ¥528. Prepare
the adjusting entry assuming ¥2,228 is the estimate of
uncollectible receivables from the aging schedule.
Dec. 31 Bad Debt Expense 1,700
Allowance for Doubtful Accounts 1,700

Bad Debt Expense Allowance for Doubtful Accounts

Dec. 31 Adj. 1,700 Dec.31 Bal. 528
Dec. 31 Adj. 1,700
Dec. 31 Bal. 2,228

Copyright ©2019 John Wiley & Sons, Inc. 24

Estimating the Allowance p.10 (4 of 4)
Illustration: Assume the unadjusted trial balance shows
Allowance for Doubtful Accounts with a debit balance of
¥500. Prepare the adjusting entry assuming ¥2,228 is the
O
estimate of uncollectible receivables.
Dec. 31 Bad Debt Expense 2,728
Allowance for Doubtful Accounts 2,728

Bad Debt Expense Allowance for Doubtful Accounts

Dec. 31 Adj. 2,728 Dec. 31 Bal. 500
Dec. 31 Adj. 2,728
Dec. 31 Bal. 2,228

Copyright ©2019 John Wiley & Sons, Inc. 25

 Disposing of Accounts Receivables p.11
(1 of 2)

Companies sell receivables for two major reasons.

1. Receivables may be the only reasonable source of
cash.
2. Billing and collection are often time-consuming and
costly.

LO 2 Copyright ©2019 John Wiley & Son, Inc. 26

Disposing of Accounts Receivables p.11 (2 of 3)
Sale of Receivables to a Factor 將應收帳款出售給給客帳代理商
• Finance company or bank
• Buys receivables from businesses and then collects
payments directly from customers
• Typically charges a commission to company that is selling
receivables
• Fee ranges from 1% to 3% of receivables purchased

Copyright ©2019 John Wiley & Sons, Inc. 27

Sale of Receivables to a Factor p.11
Illustration: Assume that Keelung Jewelry factors NT$600,000
of receivables to Federal Factors (amounts in thousands).
Federal Factors assesses a service charge of 2% of the
amount of receivables sold. The journal entry to record the
sale by Keelung Jewelry is as follows.

Cash 588,000
Service Charge Expense 12,000
Accounts Receivable 600,000
(NT$600,000 × 2% = NT$12,000)

Copyright ©2019 John Wiley & Sons, Inc. 28

Disposing of Accounts Receivables p.12 (3 of 3)
National Credit Card Sales
• Retailer pays card issuer a fee of 2 to 4% of invoice
price grace penod

• Recorded same as cash sales

• Advantages to retailer:
 Issuer does credit investigation of customer
 Issuer maintains customer accounts
 Issuer undertakes collection and absorbs losses
 Receives cash more quickly
Copyright ©2019 John Wiley & Sons, Inc. 29
National Credit Card Sales p.12
Illustration: Ling Lee purchases NT$6,000 of paper products
for her restaurant from Wu Supplies using her Visa First Bank
Card. First Bank charges a service fee of 3%. The entry to
record this transaction by Wu Supplies on March 22, 2020, is
as follows.

Cash 5,820
Service Charge Expense 180
Sales Revenue 6,000
(NT$6,000 × 3% = NT$180)

Copyright ©2019 John Wiley & Sons, Inc. 30

Learning Objective 3
Explain How Companies Recognize,
Value, and Dispose of Notes Receivable

Copyright ©2019 John Wiley & Sons, Inc. 31

Notes Receivable p.13 (1 of 2)
Companies may grant credit in exchange for a promissory
note. A promissory note is a written promise to pay a
specified amount of money on demand or at a definite
time.
Promissory notes may be used
1. when individuals and companies lend or borrow
money,
2. when amount of transaction and credit period
exceed normal limits, or
3. in settlement of accounts receivable.
Copyright ©2019 John Wiley & Sons, Inc. 32
Notes Receivable p.14 (2 of 2)
To the payee (收款人), the promissory note is a note
receivable.
To the maker (付款人/開票人), the promissory note is a
note payable.
面額

到期日 發票日

利率

Copyright ©2019 John Wiley & Sons, Inc. 33

Determining the Maturity Date p.14
Maturity date of a promissory note may be stated in one
of three ways:
1. On demand.
2. On a stated date.
3. At the end of a stated period of time.
Note terms are expressed in:
• Months
• Days

Copyright ©2019 John Wiley & Sons, Inc. 34

Computing Interest p.15
Face Value of Note × Annual Interest Rate × Time in
Terms of One Year = Interest
When counting days, omit date note is issued, but
include due date

Terms of Note Interest Computation

Face x Rate x Time = Interest
₺ 730, 12%, 120 days ₺ 730 x 12% x 120/360 = ₺ 29.20
₺1,000, 9%, 6 months ₺1,000 x 9% x 6/12 = ₺ 45.00
₺2,000, 6%, 1 year ₺2,000 x 6% x 1/1 = ₺120.00

Copyright ©2019 John Wiley & Sons, Inc. 35

Recognizing Notes Receivable p.16
Illustration: Calhoun plc wrote a £1,000, two-month, 12%
promissory note dated May 1, to settle an open account.
Prepare an entry Wilma Ltd. would make for the receipt of the
note.

May 1 Notes Receivable 1,000

Accounts Receivable 1,000

Copyright ©2019 John Wiley & Sons, Inc. 36

Valuing Notes Receivable p.16
• Report short-term notes receivable at their cash (net)
realizable value
• Estimation of cash realizable value and recording bad
debt expense and related allowance are similar to
accounts receivable

Copyright ©2019 John Wiley & Sons, Inc. 37

Disposing of Notes Receivable p.16 (1 of 2)
1. Notes may be held to their maturity date
2. Maker may default and payee must make an
adjustment to the account
3. Holder speeds up conversion to cash by selling the
note receivable

Copyright ©2019 John Wiley & Sons, Inc. 38

Disposing of Notes Receivable p.16 (2 of 2)
Honor of Notes Receivable
• Maker pays it in full at its maturity date
Dishonor of Notes Receivable
• Not paid in full at maturity
• No longer negotiable

Copyright ©2019 John Wiley & Sons, Inc. 39

Honor of Notes Receivable p.16
Illustration: Wolder Co. lends Higley Co. €10,000 on June 1,
accepting a five-month, 9% interest note. To obtain payment,
Wolder (the payee) must present the note either to Higley Co.
(the maker) or to the maker’s agent, such as a bank. If Wolder
presents the note to Higley Co. on November 1, the maturity
date, Wolder’s entry to record the collection is as follows.

Nov. 1 Cash 10,375

Notes Receivable 10,000
Interest Revenue (€10,000 × 9% x 5/12) 375

Copyright ©2019 John Wiley & Sons, Inc. 40

Accrual of Interest Receivable p.17 (1 of 2)
Illustration: Suppose instead that Wolder Co. prepares
financial statements as of September 30. The adjusting entry
by Wolder is for four months ending Sept. 30.

Sept. 30 Interest Receivable (€10,000 × 9% x 4/12) 300

Interest Revenue 300

Copyright ©2019 John Wiley & Sons, Inc. 41

Accrual of Interest Receivable p.17 (2 of 2)
Illustration: Prepare the entry Wolder’s would make to record
the honoring of the Higley note on November 1.

Nov. 1 Cash 10,375

Notes Receivable 10,000
Interest Receivable 300
Interest Revenue (€10,000 × 9% x 1/12) 75

Copyright ©2019 John Wiley & Sons, Inc. 42

Dishonor of Notes Receivable p.17 (1 of 2)
Illustration: Assume that Higley Co. on November 1 indicates
that it cannot pay at the present time. If it does expect
eventual collection, Wolder Co. would make the following
entry at the time the note is dishonored (assuming no previous
accrual of interest).

Nov. 1 Accounts Receivable 10,375

Notes Receivable 10,000
Interest Revenue 375

Copyright ©2019 John Wiley & Sons, Inc. 43

Dishonor of Notes Receivable (2 of 2)
Illustration: If instead on November 1 there is no hope of
collection, the note holder would write off the face value of the
note by making the following entry at the time the note is
dishonored (assuming no previous accrual of interest).

Nov. 1 Allowance for Doubtful Accounts 10,000

Notes Receivable 10,000

Copyright ©2019 John Wiley & Sons, Inc. 44

Learning Objective 4
Describe the Statement Presentation
and Analysis of Receivables

Copyright ©2019 John Wiley & Sons, Inc. 45

Presentation and Analysis p.18
Presentation
Statement of Financial Position
• Identify on statement or in the notes each major type
of receivable
• Report short-term receivables as current assets
• Report both gross amount of receivables and
allowance for doubtful account Accounts receivable
z
-
Allowance
Accomp receivable , not
XXX

Copyright ©2019 John Wiley & Son, Inc. 46

Presentation and Analysis p.19 &

Presentation
:

Income Statement .

• Report bad debt expense and service charge expense

in operating expenses section
• Report interest revenue under “Other income and
expense” in non-operating section
1, 000
**
JAR
11 000

X
sales
gij
#900

(cash Ar X

Copyright ©2019 John Wiley & Son, Inc. 47

Analysis p.19
Illustration: Cisco Lenovo Group (CHN) (which reported in U.S.
dollars) had net sales of $38,707 million for the year. It had a
beginning accounts receivable (net) balance of $2,885 million
and an ending accounts receivable (net) balance of $3,171
million. Assuming that Lenovo’s sales were all on credit, its
accounts receivable turnover is computed as follows.
Ar -
allowance

Net Credit Average Net Accounts Receivable

÷ =
Sales Accounts Receivable Turnover
beginning ending

$2,885 + $3,171
$38,707 ÷ = 12.8 times
2
↑ ↑ d

Copyright ©2019 John Wiley & Son, Inc. 48

Analysis p.19
Illustration: A variant of the accounts receivable turnover ratio
is average collection period in terms of days.

Net Credit Average Net Accounts Receivable

÷ =
Sales Accounts Receivable Turnover
$2,885 + $3,171
$38,707 ÷ = 12.8 times
2

Days in Accounts Receivable Average Collection

÷ =
Year Turnover Period in Days
365 days ÷ 12.8 times = 28.5 days

Copyright ©2019 John Wiley & Son, Inc. 49

Copyright
Copyright © 2019 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Act without the express written permission of the
copyright owner is unlawful. Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up
copies for his/her own use only and not for distribution or resale. The Publisher assumes
no responsibility for errors, omissions, or damages, caused by the use of these programs
or from the use of the information contained herein.

Copyright ©2019 John Wiley & Sons, Inc. 50

Copyright
Copyright © 2019 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Act without the express written permission of the
copyright owner is unlawful. Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up
copies for his/her own use only and not for distribution or resale. The Publisher assumes
no responsibility for errors, omissions, or damages, caused by the use of these programs
or from the use of the information contained herein.

Copyright ©2019 John Wiley & Sons, Inc. 50

Copyright
Copyright © 2019 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Act without the express written permission of the
copyright owner is unlawful. Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up
copies for his/her own use only and not for distribution or resale. The Publisher assumes
no responsibility for errors, omissions, or damages, caused by the use of these programs
or from the use of the information contained herein.

Copyright ©2019 John Wiley & Sons, Inc. 50