Receivables Notes Receivable and Interest Revenue Receivables Premise

Receivables Notes Receivable and Interest Revenue

Receivables Premise:

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. Solutions:

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. Solutions: I. Notes Receivable and Interest II. Uncollectible Accounts

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. Solutions: I. Notes Receivable and Interest Today II. Uncollectible Accounts

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 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 = ? ? ? $844. = ? ? ?

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 = ? ? ? $844. = $8. 44 You try. . .

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 = ? ? ? $844. = $8. 44 You try. . . 6% for 30 days = $4. 22

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 = ? ? ? $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 • 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 ____. 31 - 17 14 + 30 44 + ? ? 60 The note is due October 16.

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 17

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 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 -10 page 411 8/16 Sold merchandise to Bob Reber on account, $4, 000. Date Account Title 16 Accounts Receivable - BR Sales Ref Debit Credit 4, 000 Should also record reduction in inventory. 4, 000

Exercise E 9 -10 page 411 11/1 Loaned $15, 000 cash to Sally Givens on a 1 -year, 10% note. Date Account Title 1 Notes Receivable Cash Ref Debit Credit 15, 000 What about the interest? 15, 000

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 -10 page 411 12/11 Sold goods to John Countryman, Inc. , receiving a $6, 750, 90 -day, 8% note. Date Account Title 1 Notes Receivable Sales Ref Debit Credit 6, 750 Should also record reduction in inventory. 6, 750

Exercise E 9 -10 page 411 Rem emb er this assu ption 8/16 Sold merchandise to Bob Reber m on ? account, $4, 000. Date Account Title Ref Debit Credit 16 Accounts Receivable - BR 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 -10 page 411 8/16 Sold merchandise to Bob Reber on account, $4, 000. Date Account Title Ref Debit Credit 16 Accounts Receivable - BR 4, 000 Sales 4, 000 12/16 Received a $4, 000, 6 -month, 9% note on account from Bob Reber. Date Account Title 16 Notes Receivable Accounts Receivable - PB Ref Debit Credit 4, 000

Exercise E 9 -10 page 411 8/16 Sold merchandise to Bob Reber on account, $4, 000. Date Account Title Ref Debit Credit 16 Accounts Receivable – BR 4, 000 Sales 4, 000 12/16 Received a $4, 000, 6 -month, 9% note on account from Bob Reber. Date Account Title 16 Notes Receivable Accounts Receivable - BR Ref Debit Credit 4, 000

Exercise E 9 -10 page 411 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 $15, 000, one year, 10% 12/11 12/16 $6, 750, 90 days, 8% $4, 000, 6 months, 9%

Accrued Interest 11/1 12/16 12/31

Accrued Interest 11/1 $15, 000 x 10% x ? ? 12/11 12/16 12/31 $15, 000 x 10% x ? ?

Accrued Interest 11/1 2 / 12 12/11 12/16 12/31 2 / 12

Accrued Interest 11/1 2 / 12 12/11 12/16 12/31 $15, 000 x 10% x 2/12

Accrued Interest 11/1 12/11 $6, 750 x 8% x ? ? 12/16 12/31 $6, 750 x 8% x ? ?

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

Accrued Interest 11/1 12/11 31 - 11 = 20 12/16 12/31 $6, 750 x 8% x 20/360

Accrued Interest 11/1 12/16 $4, 000 x 9% x ? ? 12/31 $4, 000 x 9% x ? ?

Accrued Interest 11/1 12/16 ½ month 12/31 ½ month

Accrued Interest 11/1 12/16 $4, 000 x 9% x ? ? 12/31 $4, 000 x 9% x. 5/12

Now make your calculations!

Interest Calculations Principal Rate Time Interest $15, 000 10% 2/12 $ 6, 750 8% 20/360 30 $ 4, 000 9% . 5/12 15 $250 $345

Interest Calculations Principal Rate Time Interest $15, 000 10% 2/12 $ 6, 750 8% 20/360 30 $ 4, 000 9% . 5/12 15 $250 $295

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. Date Account Title Ref 31 Interest Receivable Interest Revenue $295 Debit Credit $295

Receivables