Receivables
Chapter 9
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Reeve Warren Duchac

Definition
Accounts receivable are claims held against customers
and others for money, goods, or services.
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Classification of Receivables
Accounts receivable (Piutang Dagang) are normally
expected to be collected within a relatively short period,
such as 30 or 60 days.
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Notes receivable (Piutang Wesel) are amounts that
customers owe for which a formal, written instrument of
credit has been issued.
kredit jangka pendek kepada pelanggan. faktur dan kontrak. penjualan barang atau jasa
secara tertulis. surat wesel atau surat promes. piutang wesel berbunga.

Classification of Receivables
Other receivables expected to be collected within one
year are classified as current assets. Examples of other
receivables include:
 Interest receivable
 Taxes receivable
 Receivables from officers or employees
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Companies often sell their receivables to other companies.
This is called factoring the receivables, and the buyer of the
receivables is called a factor.
Regardless of how careful a company is in granting credit,
some credit sales will be uncollectible.
The operating expense recorded from uncollectible
receivables is called bad debt expense, uncollectible
accounts expense, or doubtful accounts expense.
Uncollectible Receivables
(Piutang Tak tertagih)
Sell. Factoring. Factor. Uncollectible. Bad debt expense. Uncollectible accounts
expense

Some indications that an account may be uncollectible
include the following:
 The receivable is past due.
 The customer does not respond to the company’s
attempts to collect.
 The customer files for bankruptcy.
 The customer closes its business.
 The company cannot locate the customer.
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Uncollectible Receivables
(Piutang Tak tertagih)
past due. does not respond . bankruptcy . closes its business. cannot locate.

The direct write-off method (Metode Langsung) of
accounting for uncollectible receivables records bad debt
expense only when an account is determined to be
worthless.
The allowance method (Metode Cadangan/Penyisihan)
records bad debt expense by estimating uncollectible
accounts at the end of the accounting period.
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Uncollectible Receivables
(Piutang Tak tertagih)
direct write-off method. allowance method .bad debt expense . estimating uncollectible accounts

Direct Write-Off Method
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Example:
On May 10, a $4,200 account receivable from D. L. Ross has
been determined to be uncollectible.
Reinstatement
entry
Receipt of
cash entry
The account written off on May 10 is later collected on
November 21.

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The Allowance Method
(Cadangan/Penyisihan Piutang Ragu-Ragu)
The specific customer accounts cannot be
decreased, so a contra account, Allowance for
Doubtful Accounts, is credited.
On December 31, 2011, ExTone Company estimates that a total
of $30,000 of the $200,000 balance of their accounts receivable
will eventually be uncollectible.

The net amount that is expected to be collected,
$170,000 ($200,000 – $30,000), is called the net
realizable value (NRV) of the receivables. The
adjusting entry reduces receivables to the NRV
and matches uncollectible expenses with
revenues.
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The Allowance Method

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Note that the allowance account
credited earlier is debited at the
write-off, not Bad Debt Expense.
On January 21, John Parker’s account of $6,000 is written
off because it is uncollectible.
The Allowance Method

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During 2012, ExTone Company writes off $26,750 of
uncollectible accounts, including the $6,000 account of John
Parker. After posting all entries to write off uncollectible
amounts, Allowance for Doubtful Accounts will have a
credit balance of $3,250 ($30,000 – $26,750).
The Allowance Method

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If ExTone Company had written off $32,100 in accounts
receivable during 2012, Allowance for Doubtful Accounts
would have a debit balance of $2,100.
The Allowance Method

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Receipt of
cash entry
Reinstatement
entry
Nancy Smith’s account of $5,000, which was written off on
April 2, is later collected on June 10. Two entries are needed:
one to reinstate Nancy Smith’s account and a second to record
receipt of the cash.
The Allowance Method

Estimating Uncollectibles
The allowance method requires an estimate of
uncollectible accounts at the end of the period.
Two methods are used to estimate the amount debited
to Bad Debt Expense.
–Percent of sales method
–Analysis of receivables method
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estimate of uncollectible accounts. Bad Debt Expense. Percent of sales method. Analysis of receivables
method.

Percent of Sales Method
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If ExTone Company’s credit sales for the period are
$3,000,000 and it is estimated that 3/4% will be
uncollectible, Bad Debt Expense is debited for $22,500
($3,000,000 x .0075). This approach disregards the balance
of $3,250 in the allowance account before the adjustment.

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After the following adjusting entry on December 31 is posted,
Allowance for Doubtful Accounts will have a balance of
$25,750 ($3,250 + $22,500).
Percent of Sales Method

Analysis of Receivables Method
The longer an account receivable is
outstanding, the less likely it is that it will
be collected.
Basing the estimate of uncollectible
accounts on how long specific amounts
have been outstanding is called aging
the receivables.
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Accounts Receivable Aging and Uncollectibles
Not Days Past Due
Past over
Customer Balance Due 1-30 31-60 61-90 91-180 181-365 365
Ashby & Co. $ 150 $ 150
B. T. Barr 610 $ 350 $260
Brock Co. 470 $ 470
Saxon Woods 160 160
Total $86,300 $75,000 $4,000 $3,100 $1,900 $1,200 $800 $300
Total accounts receivable
shown by age.

2%2% 5%5% 10%10% 20%20% 30%30% 50% 80%50% 80%
Uncollectibles
PERCENT
Uncollectible percentages based on
experience and industry averages.
Not Days Past Due
Past over
Customer Balance Due 1-30 31-60 61-90 91-180 181-365 365
Ashby & Co. $ 150 $ 150
B. T. Barr 610 $ 350 $260
Brock Co. 470 $ 470
Saxon Woods 160 160
Total $86,300 $75,000 $4,000 $3,100 $1,900 $1,200 $800 $300
Accounts Receivable Aging and Uncollectibles

2%2% 5%5% 10%10% 20%20% 30%30% 50%50% 80%80%
AMOUNT $3,390 =$3,390 =$1,500$1,500$200$200 $310$310 $380$380 $360$360 $400$400 $240$240
Accounts Receivable Aging and UncollectiblesAccounts Receivable Aging and Uncollectibles
Not Days Past Due
Past over
Customer Balance Due 1-30 31-60 61-90 91-180 181-365 365
Ashby & Co. $ 150 $ 150
B. T. Barr 610 $ 350 $260
Brock Co. 470 $ 470
Saxon Woods 160 160
Total $86,300 $75,000 $4,000 $3,100 $1,900 $1,200 $800 $300
Uncollectibles
PERCENT

Year-End Adjustment for Uncollectibles
General Ledger
Accounts Receivable
86,300AA
Allowance for Doubtful Accts.
510
Bad Debt Expense
Accounts receivable $86,300
Less allowance for
doubtful accounts 3,390
Net realizable value $82,910
Balance Sheet
AA
Balances before adjustmentAA
Year-end adjustment:
$3,390 – $510 = $2,880
BB
2,880BB
2,880 BB
Balance after adjustmentCC
3,390 CC
CC

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Comparing Methods
The primary differences between the direct
write-off and allowance methods are
summarized below.

Learning Objective 6
6.Describe the accounting for notes
receivable.

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Characteristics of Notes Receivable
• A note receivable, or promissory note, is a
written document containing a promise to
pay. Characteristics of a promissory note
are as follows:
– The maker is the party making the promise
to pay.
– The payee is the party to whom the note is
payable.
– The face amount is the amount the note is
written for on its face.
(continued)

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Characteristics of Notes Receivable
 The issuance date is the date a note is
issued.
 The due date or maturity date is the
date the note is to be paid.
 The term of a note is the amount of
time between the issuance and due
dates.
 The interest rate is the rate of interest
that must be paid on the face amount
for the term of the note.

• The maturity value is the amount that must
be paid at the due date of the note, which
is the sum of the face amount and the
interest.
Notes Receivable
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Answer: June 14
• Total days in note 90 days
– Number of days in March 31
– Issue date of note, March 16 (16)
– Remaining days in March
days 15
– Number of days in April 30
– Number of days in May
days 31
– Residual days in June (14) days
Due Date of a 90-day Note
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Accounting for Notes
Receivable
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Received a $6,000, 12%, 30-day note dated
November 21, 2012, in settlement of the account of
W. A. Bunn Company.

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Accounting for Notes
Receivable
On December 21, when the note matures, the firm
receives $6,060 from W. A. Bunn Company ($6,000
face amount plus $60 interest).

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Accounting for Notes
Receivable
If W. A. Bunn Company fails to pay the note on the
due date, it is considered a dishonored note receivable.
The note and interest are transferred back to the
customer’s account receivable.

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Accounting for Notes
Receivable
A 90-day, 12% note dated December 1, 2012, is
received from Crawford Company to settle its
account, which has a balance of $4,000.

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Accounting for Notes
Receivable
Assuming that the accounting period ends on
December 31, an adjusting entry is required to record
the accrued interest of $40 ($4,000 x 0.12 x 30/360).

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Accounting for Notes
Receivable
On March 1, 2013, $4,120 is received for the note
($4,000) and interest ($120).

Learning Objective 7
6. Describe the accounting for notes
receivable.
7. Describe the reporting of receivables on
the balance sheet.

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Reporting Receivables on the Balance Sheet

Learning Objective 8
6.Describe the accounting for notes receivable.
7.Describe the reporting of receivables on the
balance sheet.
8.Describe and illustrate the use of accounts
receivable turnover and number of days’ sales
in receivables to evaluate a company’s
efficiency in collecting its receivables.

Accounts Receivable Turnover
• The accounts receivable turnover
measures how frequently during the year
the accounts receivable are being
converted to cash.
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Accounts
Receivable
Turnover
Net Sales
Average Accounts
Receivable
=

Number of Days Sales in Receivables
• The number of days’ sales in receivables
is an estimate of the length of time the
accounts receivable have been
outstanding.
Number of Days’
Sales in
Receivables
Average Accounts Receivable
Average Daily Sales
=
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Receivables
The End