Lecture: Chapter 7 - Short-Term Receivables

Overview

• Focus on Chapter 7
  • Importance of reading and understanding
  • Need for self-quizzing and practice
• Topics: Sales on Account, Credit Card Sales, Bad Debts, Short-term Notes Receivable

Sales on Account

• Review:
  • Increase Accounts Receivable (Asset - Debit)
  • Credit Revenue account (Sales)
  • Debit Cost of Goods Sold (Expense)
  • Decrease Merchandise Inventory

Credit Card Sales

• Benefits:
  • Reduces risk for companies
  • Increases sales
• Example Transactions:
  • Transaction A: $2,000 merchandise, $1,800 cost, 5% fee
    • Sales: Credit full amount
    • Cash: Deposit less 5% fee
    • Credit card expense: 5% of sales
  • Transaction B: $300 merchandise, 10-day delay, 2% fee
    • Accounts Receivable: Recorded net of 2% fee
    • Credit card expense: 2% of sales

Bad Debts

• Direct Write-off Method:

  • Write off uncollectible accounts directly
  • Example: Write off $600, later collect $200

• Allowance Method:

  • Required by GAAP
  • Two forms: Percentage of Sales or Accounts Receivable
  • Percentage of Sales:
    • Sales x percentage = uncollectibles
    • Entry: Debit Bad Debt Expense, Credit Allowance for Doubtful Accounts
  • Percentage of Accounts Receivable:
    • Adjust for existing allowance balance
    • Entry: Adjust for debit/credit balance in allowance

Notes Receivable

• Characteristics:
  • More formal than accounts receivable
  • Includes terms like maker, payee, interest rate
• Interest Calculation:
  • Principal x Interest Rate x (Days/360)
• Maturity Calculation:
  • Count days starting from note date
  • Adjust for full months and remaining days
• Journal Entries:
  • Convert from accounts receivable
  • Maturity: Record cash, interest revenue, adjust for interest receivable

Practical Tips

• Understand journal entries
• Differentiate between percentage of sales and accounts receivable
• Adjust for year-end in notes receivable
• Use flashcards for journal entry practice

Additional Notes

• Practice exercises and scenarios provided
• Importance of understanding concepts for future chapters
• Encouragement to seek help if needed and to use flashcards for effective learning