Chapter 10 Accounting for Notes Receivable Unearned Revenue

Chapter 10 Accounting for Notes Receivable, Unearned Revenue, and Accrued Revenue

10 -1 Notes Receivable Promissory notes that a business accepts from customers. April 3. Accepts a 30 -day, 12% note from Duane Jansen for an extension of time on his account, $300. Note Receivable No. 11 A customer has bought something from us on account. Then defaults on the loan so instead of writing off the account we change it over to a note where we will charge interest. General Journal Account Title Page 4 Date Doc No Post Ref Debit Credit April 3 Notes Receivable 300 Accounts Rec. / Duane Jansen 300

Issuing a Note for a Sale April 4. Accepts a 90 -day, 12% note from Mark Carver for the sale of an appliance, $450. 00 Note Receivable No. 12 We do something like this when we want to extend something over a longer period of time. For example when you hear a company say do not pay until 2 years later. General Journal Page 4 Date Account Title Doc No Post Ref Debit Credit April 4 Notes Receivable 450 Sales 450

Receiving Cash for a Note Receivable Principal 300. 00 x Rate 12% x Time = 30/360 Interest 3. 00 Cash Receipt Journal Sales Tax Payable General Date Account Title Doc No. Pt Ref Debi t Cred i t Acct Rec Credi t Sales Credit Debi t Credit Sales Disc o u n t Debit Cas h Deb i t 3 -May Notes Receivable R 452 300 303 Interest Income 3

Recording a Dishonored Note Receivable June 1. Ruth Javinsky dishonored Note Receivable No. 8, a 30 -day 12% Pag e 4 General Journal Dat e Doc N o Account Title Post R ef Accounts Rec. / Ruth M 12 Jun 1 Javinsky 0 De Cre b d i i t t 252. 5 Notes Receivable 250 Interest Income 2. 5

Receiving Cash for a Dishonored Note Receivable Here is what has transpired. Cash Receipt Journal 1. Somebody bought something from us… Sales Tax Sales Payable Acct C Sales on A/R we changed. Rec it to a Notes receivable r Doc the. Post Cre Discou No. Ref Credit e nt d in the belief. Debit that. Credit they will pay us. d Debit it t General 2. They defaulted Account Title charge interest Date to Cash Debit 3. They defaulted on our Note. 30 -Sep Ruth Javinsky R 201 252. 5 262. 68 Interest Income 10. 18 4. Then they have decided to pay us on a defaulted note. June, but they did not pay until September. If the note was due in We have to record the additional Interest from June to September. Maturity Value x Interest Rate x Fraction of Year = Additional Int. 252. 50 12% 121/360 10. 18

Section 10 -2 Unearned and Accrued Revenue received in one fiscal period but not paid until the next fiscal period is called Unearned revenue. Rent Income $6000 $4000 $2000 Unearned Rent is considered to be a Liability Account $4000 On December 1 st. The business that works out of our building gave us a check for $6000 (We charge $2000/ month) for December, January, and February. At the end of the year, we have to do a adjusting entry so that when we close Rent Income we will not loose the money given to us.

Rent Income $6000 $4000 Unearned Rent $4000 $2000 General Journal Page 4 Date Account Title Doc No Post Ref Debit Credit Adjusting Entry Rent Income Unearned Rent $6000 for three months $2000 4000

We have given two notes out…. . Note Receivable No. 12. a 60 -day, 10% note dated December 1, $500. 00 Note Receivable No. 13 a 30 -day, 10% note dated December 16, $700. We have to figure out how much interest we accrued (earned) from when we gave the loan to the end of the year. Note Principal x 12 13 14 $500 $700 x x Rate 10% Note 12 = $4. 17 Note 13 = $2. 92 x Fraction of year x x 30/360 15/360 = = = Accrued Interest Income $4. 17 $2. 92 $7. 09

u So in English, we earned 7. 09 from the money we gave to people, but we have not received it yet. That is called Accrued Revenue. Interest Rec. Adj. 7. 09 Interest Income Dec. 31 Bal 65. 70 Adj. 7. 09 new balance 72. 79

We have to close the revenue acct. u. Remember that we have to do a reversing entry in Interest Receivable to clear that account out. u Interest Rec. Adj. 7. 09 Rev. 7. 09 ----0 ---- Interest Income Dec. 31 Bal 65. 70 Adj. 7. 09 new balance 72. 79 Clo. 72. 79 ----0 ----Rev. 7. 09

Problems u 10 -1, 2, 3, 4 u