Gedorio, Angelie L.
ACCTG 213 - 68797
BSBA - 2A Assignment 1
1. What are receivables?
- are amounts collectible from customers and others arising from sale of
merchandise, claims for money lent or the performance of services.
2. What are the two classes of receivables? Explain each.
Trade Receivables - arise from sale of goods/services to customers in the
ordinary course of business operations. Two major type are accounts and notes
receivable.
Non- Trade Receivables - arising from sources other than the sale of
merchandise/services. It includes loans or advances to officers and employees,
advances to suppliers, advances to affiliated companies, and accrued
receivables.
3. Explain the valuation receivables.
- here the accounts receivable should be values at their estimated realizable value.
The estimated realizable value is the expected cash value that the entity may collect
from the receivables. In estimating the net realizable value of trade receivable, there
will be deductions on allowance for doubtful accounts, allowance for freight change,
allowance for sales discounts.
4. What is the balance sheet classification of receivables?
- classified as current or non-current assets
5. Describe the balance sheet presentation of receivables?
- presented as one line item called trade and other receivables under the current
asset section. Non-trade receivables that are not currently collectible should be
presented as long-term investment or other non-current assets.
6. What are the two methods of recording credit sales?
Gross Method - accounts receivable and sales are recorded at gross amount of
the invoice.
Net Method - acounts receivable and sales are recorded at the discounted (net)
amount of the invoice.
7. Differentiate the two methods of accounting for bad debts. Which is the
accordance with GAAP?
- the allowance method is where the uncollectible accounts are estimated, whereas
in the direct written-off method, if the uncollectible accounts are determined it
should be written-off and individual accounts are determined to be worthless. The
GAAP requires to use the allowance method.
8. What is the pro-forma entry under the allowance method for each of the
following:
a) Doubtful accounts - debit Doubtful accounts then credit Allowance for doubtful
accounts.
b)Write-off of account - debit allowance for doubtful accounts, then credit
accoutns receivable
c) Recovery of accounts previously written off - first entry is to debit accounts
receivable then credit allowance for doubtful accounts. Second entry is to debit
cash, then credit accounts receivable.
9. Explain the three methods of estimating doubtful accounts.
Percent of Sales - this method is to determine a percentage of their credit sales
that will not be collectible.
Gedorio, Angelie L. ACCTG 213 - 68797
BSBA - 2A Assignment 1
Percent of Accounts Receivable - a single rate based on total accounts receivable
is used to estimate the required ending allowance balance.
Aging of Accounts Receivable - simply means classifying each receivable
according to its age.
10. What is a promissory note?
- an unconditional promise in writing made by one person to another, signed by the
maker, engaging to pay on demand, or at a fixed or determinable future time, a sum
certain in money to order or to bearer (negotiable instruments law).
11. Who are the parties to a promisory note? What is the classification of the note
in the books of each party?
- the parties are called maker of the note, who signs the note and promises to pay,
and payee of the note, whom payments is to be made.
Book of Payee - debiting the notes receivable account.
Book of Maker - crediting the notes payable account.
12. What is the discounting of note receivable?
- when a company needs extra cash, receivables may be sold or discounted at a
bank. The original payee of the note receives the proceeds of the discounted note.
Notes receivable discounted with recourse is a contingent liability that should be
disclosed in the notes to the financial statements.
13. Give the formula in the computation of the following in connection with not
receivable discounting:
a) Maturity value - MV = P +I
b)Discount - D = MV x DR x T
c) Net proceeds - NP = MV - D
14. Discuss the accounting for the difference between net proceeds and face value
of note.
- if the net proceeds exceed the fave value of the note discounted, the excess is gain
on discounting but preferably credited to interest income.
- if the net proceeds are less than the face value of the note discounted, the
difference is loss on discounting but preferably debited to interest expense.
