7-1 receivables chapter 7 electronic presentation by douglas cloud pepperdine university
DESCRIPTION
7-3 5.Describe the direct write-off method of accounting for uncollectible receivables. 6.Describe the nature, characteristics, and accounting for notes receivable. 7.Describe the reporting of receivables on the balance sheet. 8.Describe the principles of managing receivables. Learning Goals ContinuedContinuedTRANSCRIPT
![Page 1: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/1.jpg)
7-1
ReceivablesChapter 7
Electronic Presentation by Douglas Cloud
Pepperdine University
![Page 2: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/2.jpg)
7-2
1. Describe the common classifications of receivables.
2. Summarize and provide examples of internal control procedures that apply to receivables.
3. Describe the nature of and the accounting for uncollectible receivables.
4. Describe the allowance method of accounting for uncollectible receivables.
Learning GoalsLearning Goals
After studying this After studying this chapter, you should chapter, you should
be able to:be able to:
ContinuedContinued
![Page 3: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/3.jpg)
7-3
5. Describe the direct write-off method of accounting for uncollectible receivables.
6. Describe the nature, characteristics, and accounting for notes receivable.7. Describe the reporting of receivables on the balance sheet.8. Describe the principles of managing receivables.
Learning GoalsLearning Goals
ContinuedContinued
![Page 4: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/4.jpg)
7-4
9. Compute and interpret the accounts receivable turnover and the number of days’ sales in receivables.
Learning GoalsLearning Goals
![Page 5: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/5.jpg)
7-5
1Learning GoalLearning Goal
Describe the common classifications of receivables.
![Page 6: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/6.jpg)
7-6
When merchandise or services are sold on credit, an accounts
receivable is established.
![Page 7: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/7.jpg)
7-7
Most accounts receivable are expected to be collected in 30 to
60 days; so, they are current assets.
![Page 8: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/8.jpg)
7-8
Dec. 13, 2005
I promise to pay__________________________________
____________________________________________
at an interest rate of _____% within ______ days.
________________________
Douglas CloudOne Thousand Dollars and no/100 6 90 T. Wood
Notes receivable are amounts that customers owe for which a formal, written instrument of
credit has been issued.
![Page 9: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/9.jpg)
7-9
Notes and accounts receivable that result from sales
transactions are sometimes called trade receivables.
![Page 10: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/10.jpg)
7-10
Summarize and provide examples of internal control procedures that apply to receivables.2
Learning GoalLearning Goal
![Page 11: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/11.jpg)
7-11
![Page 12: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/12.jpg)
7-12
Describe the nature of and the accounting for uncollectible receivables.
3Learning GoalLearning Goal
![Page 13: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/13.jpg)
7-13
Often when a company issues its own credit card, it sells its
receivables to other companies. This is called factoring and the
buyer is called the factor.
![Page 14: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/14.jpg)
7-14
Regardless of the care used in
granting credit and the collection
procedure used, normally a part of
the credit sales will not be collectible.
![Page 15: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/15.jpg)
7-15
The two methods of accounting for receivables that appear to be
uncollectible are the allowance method and the direct-write-off method.
![Page 16: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/16.jpg)
7-16
Describe the allowance method of accounting for uncollectible receivables.
4Learning GoalLearning Goal
![Page 17: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/17.jpg)
7-17
Richards Company, a new company with a fiscal period ending on December 31,
ends the year with $1,000,000 in the Accounts Receivable account.
Based on careful study, Richards estimates that $40,000 of the $1,000,000
will eventually be uncollectible.
A year-end adjusting entry is needed:
![Page 18: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/18.jpg)
7-18
Dec. 31 Uncollectible Accounts Expense 40,000Allowance for Doubtful Accounts 40,000
Also called Also called Bad Bad Debts ExpenseDebts Expense or or
Doubtful Accounts Doubtful Accounts ExpenseExpenseA A contra accountcontra account
to to Accounts Accounts ReceivableReceivable
Because specific customer accounts cannot be identified at this time, the
allowance account is used.
![Page 19: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/19.jpg)
7-19
Subtracting the balance of the allowance account from the
receivables balance provides the net realizable value—which is the
amount Richards expects to collect.
$1,000,000 - 40,000$ 960,000
![Page 20: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/20.jpg)
7-20
Write-Offs to the Write-Offs to the Allowance AccountAllowance Account
On January 21 John Parker, one of Richards Company’s receivables, files for bankruptcy.
Thus, his account of $6,000 is deemed uncollectible. The following entry is required:
Jan. 21 Allowance for Doubtful Accounts 6,000Accounts Receivable—J. Parker 6,000
![Page 21: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/21.jpg)
7-21
![Page 22: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/22.jpg)
7-22
Collecting a Written-Off AccountCollecting a Written-Off Account
John Parker won the state lottery, so he is paying all of his bankruptcy debts. On June 10,
Richards Co. receive a check for $6,000.
10 Cash 6,000Accounts Receivable—J. Parker 6,000
June 10 Accounts Receivable—J. Parker 6,000Allowance for Doubtful Accts. 6,000
![Page 23: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/23.jpg)
7-23
Estimating UncollectiblesEstimating Uncollectibles
Estimate Based on Sales
Allowance for Doubtful Accounts
Bal. 7,000It is estimated that It is estimated that
1% of the $3 1% of the $3 million in credit million in credit
sales will become sales will become uncollectible.uncollectible.
Dec. 31 Uncollectible Accounts Expense 30,000Allowance for Doubtful Accounts 30,000
30,00037,000
![Page 24: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/24.jpg)
7-24
Estimating UncollectiblesEstimating Uncollectibles
The process of determining how long a receivable has been outstanding and
attaching a percentage to that time period is referred to as aging the receivables.
Estimate Based on Analysis of Receivables
![Page 25: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/25.jpg)
7-25
Estimating UncollectiblesEstimating UncollectiblesEstimate Based on Analysis of Receivables
The longer an account has been outstanding, the less like the receivable will be collected.
![Page 26: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/26.jpg)
7-26
Accounts Receivable Aging and UncollectiblesAccounts Receivable Aging and Uncollectibles
Not Days Past DuePast over
Customer Balance Due 1-30 31-60 61-90 91-180 181-365 365
Ashby & Co. $ 150 $ 150B. T. Barr 610 $ 350 $260Brock Co. 470 $ 470
J. Zimmer Co. 160 160
Total $86,300 $75,000 $4,000 $3,100 $1,900 $1,200 $800 $300
Total accounts receivable shown by age.
![Page 27: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/27.jpg)
7-27
2%2% 5%5% 10%10% 20%20% 30%30% 50%50% 80% 80%Uncollectibles
PERCENT
Uncollectible percentages based on experience and industry averages.
Not Days Past DuePast over
Customer Balance Due 1-30 31-60 61-90 91-180 181-365 365
Ashby & Co. $ 150 $ 150B. T. Barr 610 $ 350 $260Brock Co. 470 $ 470
J. Zimmer Co. 160 160
Total $86,300 $75,000 $4,000 $3,100 $1,900 $1,200 $800 $300
Accounts Receivable Aging and UncollectiblesAccounts Receivable Aging and Uncollectibles
![Page 28: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/28.jpg)
7-28
2%2% 5%5% 10%10% 20%20% 30%30% 50%50% 80% 80%Uncollectibles
PERCENT
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 DuePast over
Customer Balance Due 1-30 31-60 61-90 91-180 181-365 365
Ashby & Co. $ 150 $ 150B. T. Barr 610 $ 350 $260Brock Co. 470 $ 470
J. Zimmer Co. 160 160
Total $86,300 $75,000 $4,000 $3,100 $1,900 $1,200 $800 $300
![Page 29: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/29.jpg)
7-29
Estimating UncollectiblesEstimating Uncollectibles
Estimate Based on Analysis of Receivables
Allowance for Doubtful Accounts
Bal. 510
By aging, it is estimated that
$3,390 of the credit sales will become
uncollectible.
Dec. 31 Uncollectible Accounts Expense 2,880Allowance for Doubtful Accounts 2,880
2,8803,390
![Page 30: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/30.jpg)
7-30
Estimating UncollectiblesEstimating UncollectiblesEstimate Based on Analysis of Receivables
Notice that when the estimation is based on accounts receivable, the calculated
amount is the desired ending balance in the allowance account.
![Page 31: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/31.jpg)
7-31
Describe the direct write-off method of accounting for uncollectible receivables.
5Learning GoalLearning Goal
![Page 32: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/32.jpg)
7-32
While the allowance method is preferred, there are
situations where the cash basis is acceptable.
![Page 33: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/33.jpg)
7-33
What type of situations?
![Page 34: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/34.jpg)
7-34
The direct write-off method is acceptable
when it is impossible to accurately estimate the
uncollectibles.
![Page 35: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/35.jpg)
7-35
It is also acceptable when a business sells most of its goods or services for cash. The amount of
uncollectibles is small.
![Page 36: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/36.jpg)
7-36
D. L. Ross owes Hankin Company $4,200. All efforts to collect have failed, so on May 10 Hankin decides the account is uncollectible.
May 10 Uncollectible Accounts Expense 4,200Accounts Receivable—D. L. Ross 4,200
Note that the direct write-off-method Note that the direct write-off-method debits the expense account at the debits the expense account at the
time of the write-off.time of the write-off.
![Page 37: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/37.jpg)
7-37
On November 21, Hankin receives a check for $4,200 from D. L. Ross.
Nov. 21 Accounts Receivable—D. L. Ross 4,200Uncollectible Accounts Expense 4,200
This entry “reinstates” the debt.
21 Cash 4,200Accounts Receivable—D. L. Ross 4,200
![Page 38: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/38.jpg)
7-38
Describe the nature, characteristics, and accounting for notes receivable.6
Learning GoalLearning Goal
![Page 39: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/39.jpg)
7-39
Notes ReceivableNotes Receivable
$_____________Fresno, California______________20___March 16 05
________________ _AFTER DATE _______ PROMISE TO PAY TO Ninety days WeTHE ORDER OF ____________________________________________ Judson Company
_________________________________________________DOLLARSTwo thousand five hundred 00/100---------------------------PAYABLE AT ______________________________________________
City National Bank
VALUE RECEIVED WITH INTEREST AT ____10%
2,500.00
NO. _______ DUE___________________14 June 14, 2005
TREASURER, WILLIARD COMPANYH. B. Lane
PayeePayee
MakerMakerDue DateDue Date
![Page 40: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/40.jpg)
7-40
a specific amount of money (principal)a specific amount of money (principal) to a specific person or company (payee)to a specific person or company (payee) by a specific person (maker) by a specific person (maker) on a specific date or upon demandon a specific date or upon demand plus interest at a specific percentage of the plus interest at a specific percentage of the
principal (face) amount per yearprincipal (face) amount per year
A promissory note is a written document containing a promise to pay:
![Page 41: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/41.jpg)
7-41
Principal + Interest = Maturity Value $6,000 + $60 = $6,060
Principal x Rate x Time = Interest
$6,000 x 12% x 30/360 = $60
Interest CalculationInterest Calculation
Received a $6,000, 12%, 30-day note dated November 21, 2005 from W. A. Bunn in
settlement of a past-due account.
Maturity Value CalculationMaturity Value Calculation
![Page 42: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/42.jpg)
7-42
Nov. 21 Notes Receivable—W. A. Bunn 6,000Accounts Receivable—W. A. Bunn 6,000
When the note is received.When the note is received.
Dec. 21 Cash 6,060Notes Receivable—W. A. Bunn 6,000Interest Revenue 60
At maturity date.At maturity date.
![Page 43: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/43.jpg)
7-43
If a note matures in a later fiscal period, the company holding the note makes an adjusting entry for accrued
interest.
Dec. 13, 2005
I promise to pay__________________________________
____________________________________________
at an interest rate of _____% within ______ days.
________________________
Douglas CloudOne Thousand Dollars and no/100 6 90 T. Wood
![Page 44: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/44.jpg)
7-44
Crawford Company uses a 90-day, 12% note, dated December 1, 2005, to settle its account, which has a balance of $4,000.
Dec. 31 Interest Receivable 40Interest Revenue 40
Dec. 1 Notes Receivable—Crawford Co. 4,000Accounts Receivable— Crawford Co. 4,000
2005
$4,000 x .12 x 30/360
Mar. 1 Cash 4,120Notes Receivable 4,000Interest Receivable 40Interest Revenue 80
2006
![Page 45: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/45.jpg)
7-45
Describe the reporting of receivables on the balance sheet.7
Learning GoalLearning Goal
![Page 46: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/46.jpg)
7-46
Starbucks’ASSETS Sept. 30, 2001 (in thousands)Current assets:
Cash and cash equivalents $113,237Marketable securities 107,312Accounts receivable, net of allowance of $4,590 90,425Inventories 221,253Prepaid expenses and other current assets 61,698
Total current assets $593,925
![Page 47: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/47.jpg)
7-47
Describe the principles of managing accounts receivable.8
Learning GoalLearning Goal
![Page 48: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/48.jpg)
7-48
Screening CustomersScreening Customers
Screening customers involves assessing
which customers should be granted credit.
In addition to analyzing the buyer’s application
and documents, the seller usually requires an independent credit
report…
…and often will contact the buyer’s bank and
other credit references. Dun & Bradstreet
provides credit ratings for many business
customers.
![Page 49: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/49.jpg)
7-49
Determining Credit TermsDetermining Credit TermsOnce a seller has decided to grant credit to a buyer, the
seller must determine credit terms for the sale.
![Page 50: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/50.jpg)
7-50
Determining Credit TermsDetermining Credit TermsThis includes determining a credit limit which is based on the credit worthiness of
the customer.
![Page 51: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/51.jpg)
7-51
Monitoring CollectionsMonitoring Collections
Sellers should monitor
concentrations of credit risk in any one customer or class of
customers.
![Page 52: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/52.jpg)
7-52
Compute and interpret the accounts receivable turnover and the number of days’ sales in receivables.
9Learning GoalLearning Goal
![Page 53: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/53.jpg)
7-53
Accounts Receivable TurnoverAccounts Receivable Turnover 2006 2005
Net sales on account $1,498,000 $1,200,000Accounts receivable (net):
Beginning of year $ 120,000 $ 140,000End of year 115,500 120,000Total $ 235,000 $ 260,000Average $ 117,500 $ 130,000
$1,498,000$117,500
$1,200,000$130,000
Net SalesAverage accounts receivable
Use: To assess the efficiency in collecting receivables and in the management of credit
12.7 9.2
![Page 54: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/54.jpg)
7-54
Number of Days’ Sales in ReceivablesNumber of Days’ Sales in Receivables 2006
Net sales on account $1,498,000Accounts receivable (net):
Beginning of year $ 120,000End of year 115,500Total $ 235,000Average $ 117,500
Accounts receivable, end of yearAverage daily sales on account
$115,500($1,498,000 ÷ 365 days)
= 28 days
Use: To assess the efficiency in collecting receivables and in the management of credit
![Page 55: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/55.jpg)
7-55
The End
Chapter 7Chapter 7
![Page 56: 7-1 Receivables Chapter 7 Electronic Presentation by Douglas Cloud Pepperdine University](https://reader035.vdocument.in/reader035/viewer/2022062401/5a4d1b947f8b9ab0599c2c75/html5/thumbnails/56.jpg)
7-56