Receivables Notes Receivable and Interest Revenue Receivables Premise

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Receivables Notes Receivable and Interest Revenue

Receivables Notes Receivable and Interest Revenue

Receivables Premise:

Receivables Premise:

Receivables Premise: When you extend credit to customers…

Receivables Premise: When you extend credit to customers…

Receivables Premise: When you extend credit to customers… you know some customers won’t pay.

Receivables Premise: When you extend credit to customers… you know some customers won’t pay.

Receivables Premise: When you extend credit to customers… you know some customers won’t pay.

Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions:

Receivables Premise: When you extend credit to customers… you know some customers won’t pay.

Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I. Notes Receivable and Interest

Receivables Premise: When you extend credit to customers… you know some customers won’t pay.

Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I. Notes Receivable and Interest II. Uncollectible Accounts

Receivables Premise: When you extend credit to customers… you know some customers won’t pay.

Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I. Notes Receivable and Interest II. Uncollectible Accounts Lecture

Receivables Premise: When you extend credit to customers… you know some customers won’t pay.

Receivables Premise: When you extend credit to customers… you know some customers won’t pay. Solutions: I. Notes Receivable and Interest Today II. Uncollectible Accounts

Why Notes instead of Accounts Receivable? ücharge (earn) interest üstronger legal claim ümore liquid

Why Notes instead of Accounts Receivable? ücharge (earn) interest üstronger legal claim ümore liquid -- may be converted to cash selling A/R called “factoring” selling Notes Receivable called “discounting”

Calculating Interest P x R x T ürate is an annual rate ütime expressed

Calculating Interest P x R x T ürate is an annual rate ütime expressed as a portion of year government uses 365 many banks use 360 in homework / class

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360 = ? ? ? $844. = ? ? ?

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360 = ? ? ? $844. = $8. 44

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360 = ? ? ? $844. = $8. 44 You try. . .

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360 = ? ? ? $844. = $8. 44 You try. . . 6% for 30 days =

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360 = ? ? ? $844. = $8. 44 You try. . . 6% for 30 days = $4. 22

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360 = ? ? ? $844. = $8. 44 You try. . . 6% for 30 days = $4. 22 12% for 60 days =

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360

Short-cut “ 6% - 60 day” Method $844. x 6% x 60 / 360 = ? ? ? $844. = $8. 44 You try. . . 6% for 30 days = $4. 22 12% for 60 days = $16. 88

Determining the (Exact) Due Date • Learn the number of days in each month

Determining the (Exact) Due Date • Learn the number of days in each month • poem method • knuckle method • counting days if term of note • stated in days • stated in months

Example of Counting Days A 60 -day note dated August 17 is due ____.

Example of Counting Days A 60 -day note dated August 17 is due ____. 31 - 17 14 + 30 44 + ? ? 60 The note is due October 16.

Due Date When Stated in Months RULE: “same day of the month”

Due Date When Stated in Months RULE: “same day of the month”

Examples of Counting Months A two-month note dated August 17 is due ______. October

Examples of Counting Months A two-month note dated August 17 is due ______. October 17

Due Date When Stated in Months RULE: “same day of the month” EXCEPTION: how

Due Date When Stated in Months RULE: “same day of the month” EXCEPTION: how to deal with EOM “last day of month”

Examples of Counting Months A two-month note dated August 17 is due ______. October

Examples of Counting Months A two-month note dated August 17 is due ______. October 17 A three-month note dated Nov. 30 is due ______. February 28 A three-month note dated April 30 is due ______. July 30

Exercise E 9 -8 page 388 8/16 Sold merchandise to Prentice Berge on account,

Exercise E 9 -8 page 388 8/16 Sold merchandise to Prentice Berge on account, $4, 000. Date Account Title 16 Accounts Receivable - PB Sales Ref Debit Credit 4, 000 Should also record reduction in inventory. 4, 000

Exercise E 9 -8 page 388 11/1 Loaned $18, 000 cash to Sally Morgan

Exercise E 9 -8 page 388 11/1 Loaned $18, 000 cash to Sally Morgan on a 1 -year, 10% note. Date Account Title 1 Notes Receivable Cash Ref Debit Credit 18, 000 What about the interest? 18, 000

interest Ever been lost. . . … at Disney. World? … in a hospital?

interest Ever been lost. . . … at Disney. World? … in a hospital? … in an office building? 11/1 You are here! Interest What about the discount? 10/31

Exercise E 9 -8 page 388 12/11 Sold goods to Sue Adams, Inc. ,

Exercise E 9 -8 page 388 12/11 Sold goods to Sue Adams, Inc. , receiving a $6, 000, 90 -day, 12% note. Date Account Title 1 Notes Receivable Sales Ref Debit Credit 6, 000 Should also record reduction in inventory. 6, 000

Exercise E 9 -8 page 388 8/16 Sold merchandise to Prentice Berge on account,

Exercise E 9 -8 page 388 8/16 Sold merchandise to Prentice Berge on account, $4, 000. Date Account Title Ref Debit Credit 16 Accounts Receivable - PB 4, 000 Sales 4, 000 12/16 Received a $4, 000, 6 -month, 12% note on account from Prentice Berge. Date Account Title 16 Notes Receivable Accounts Receivable - PB Ref Debit Credit 4, 000

Exercise E 9 -8 page 388 12/31 Accrued interest revenue on all notes receivable.

Exercise E 9 -8 page 388 12/31 Accrued interest revenue on all notes receivable. Date Account Title Ref 31 Interest Receivable Interest Revenue How much? Debit Credit earned

Accrued Interest 11/1 $18, 000, one year, 10% 12/11 12/16 $6, 000, 90 days,

Accrued Interest 11/1 $18, 000, one year, 10% 12/11 12/16 $6, 000, 90 days, 12% $4, 000, 6 months, 12%

Accrued Interest 11/1 12/16 12/31

Accrued Interest 11/1 12/16 12/31

Accrued Interest 11/1 $18, 000 x 10% x ? ? 12/11 $6, 000 x

Accrued Interest 11/1 $18, 000 x 10% x ? ? 12/11 $6, 000 x 12% x ? ? 12/16 $4, 000 x 12% x ? ? 12/31 $18, 000 x 10% x ? ? $6, 000 $4, 000 xx 12% xx ? ?

Accrued Interest 11/1 2 / 12 12/11 31 - 11 = 20 12/16 ½

Accrued Interest 11/1 2 / 12 12/11 31 - 11 = 20 12/16 ½ month 12/31 / 12= 20 31 ½ -2 month 11

Exercise E 9 -8 page 388 12/31 Accrued interest revenue on all notes receivable.

Exercise E 9 -8 page 388 12/31 Accrued interest revenue on all notes receivable. Date Account Title Ref 31 Interest Receivable Interest Revenue How much? Debit Credit earned

Exercise E 9 -8 page 388 12/31 Accrued interest revenue on all notes receivable.

Exercise E 9 -8 page 388 12/31 Accrued interest revenue on all notes receivable. Date Account Title Ref 31 Interest Receivable Interest Revenue $360 Debit Credit $360

Receivables

Receivables