7 RECEIVABLES

Technical Knowledge
• To be able to distinguish between trade receivables and nontrade receivables
• To know the classification and presentation of receivables.
• To know the initial and subsequent measurement of accounts receivable.
• To identify the adjustments necessary in determining the net realizable value of
accounts receivable.
• The understand the gross method and net method of recording credit sales.
• To know the accounting for doubtful accounts, worthless accounts written-off
and recoveries of accounts written-off.
• To identify the methods of estimating doubtful accounts expense.
• To determine the doubtful accounts expense and the allowance for doubtful accounts
under aging, percentage of accounts receivable and percentage of sales
method.
• To understand the concept and nature of notes receivable.
• To know the accounting for interest-bearing and noninterest-bearing note receivable.

A. Definition
Receivables are financial assets that represent a contractual right to received cash or another
financial asset from another entity.

For retailers or manufacturers, receivables are classified into trade and nontrade receivables.

Trade receivables refer to claims arising from sale of merchandise or services in the ordinary
course of business. This include accounts receivable and notes receivable.

Nontrade receivables represents claims arising from sources other than sale of merchandise
or services in the ordinary course of business.

Trade and nontrade receivables expected to be realized in cash within the normal operating cycle
or one year, whichever is longer, are classified as current assets, otherwise, classified as
noncurrent assets.

B. Examples of Nontrade Receivables

1. Advances to or receivables from shareholders, directors, officers, or employees. If
collected in one year, should be classified as current asset.

2. Advances to affiliates are usually treated as long-term investments.

 3. Advances to supplier for the acquisition of merchandise are current assets.

4. Subscription receivable are current assets if collectible within one year.

5. Creditors' accounts with debit balances are classified as current assets.

6. Special deposit on contract bids normally are classified as noncurrent assets.

7. Accrued income such as dividend receivable, interest income, rent income, etc.
are usually classified as current assets.

8. Claims receivable such as claims from common carriers for losses or damages, claims
for rebates and tax refund, insurance claims, are normally classifies as current assets.

C. Customers' Credit Balances

Customers' credit balances are credit balances in accounts receivable resulting from overpayment,
returns and allowances and advance payments from customers. These credit balances are
classified as current liabilities and are not offset against the debit balances in other customers'
accounts, except when the same is not material in which case only the net accounts receivable
may be presented.

D. Initial Measurement of Receivables

The fair vale of a financial asset is usually the transaction price, meaning, the fair value of the
consideration given.

For short-term receivables, the fair value is equal to the face value or original invoice amount.

For long-term receivables that are interest-bearing, the fair value is equal to the face value.
However, for long-term receivables that are non-interest bearing, the fair value is equal to the
present value of all future cash flows discounted using the prevailing market rate of interest for
similar receivables. Thus, long-term interest bearing notes receivable shall be measured at face
value and long-term noninterest bearing notes receivable shall be measured at present value.

E. Net Realizable Value

Accounts receivable shall be measured initially at face value or original invoice amount. However,
subsequently, the accounts receivable shall be measured at net realizable value, meaning the
the amount of cash expected to be collected or the estimated recoverable amount.

The initial amount recognized for accounts receivable shall be reduced by adjustments which in
the ordinary course of business will reduce the amount recoverable from the customer.

This is based on the established basic principle that "assets shall not be carried at above their
 recoverable amount".

Accordingly, in estimating the net realizable value of trade accounts receivable, the following
deductions are made:

a. Allowance for freight charge

b. Allowance for sales returns
c. Allowance for sales discounts
d. Allowance for doubtful accounts = bad debt

F. Terms Related to Freight Charge

The term FOB destination means that the ownership of the goods purchase is vested in the buyer
upon receipt thereof. Thus the seller shall be responsible for the freight charge up to the point of
destination.

The term FOB shipping point means that the ownership of the goods purchased is vested in the
buyer upon shipment thereof. Thus the buyer pay for the freight or transportation charge from
the point of shipment to the point of destination.

The term "freight collect" means that the freight charge on the goods shipped is not yet paid. Thus
the common carrier shall collect the same from the buyer. Thus, under this, the freight charge is
actually paid by the buyer.

The term "freight prepaid" means that the freight charge on the goods shipped is already paid by
the seller.

Sometimes, the goods are sold "FOB destination" but shipped "freight collect" with the
understanding that the buyer will pay for the freight charge and deduct the same when the
remittance is made by him.
Example:
An entity has a $100,000 accounts receivable at the end of accounting period. The terms are
are 2/10, n/30, FOB destination and freight collect. The customer paid freight charged of $5,000.

1. To record the sale:

Accounts receivable 100,000

Freight out 5,000
Sales
Allowance for freight charge

2. To record collection within the discount period

Cash 93,000
Sales discount 2,000
 Allowance for freight charge 5,000
Accounts receivable

G. Allowance for Sales Returns

The measurement of accounts receivable shall also recognize the probability that some customers
will return goods that are unsatisfactory or will make other claims requiring reduction in the amount
due as in the case of shipment shortages and defects.

For example, an amount of $50,000 of the total accounts receivable at year-end represents selling
price of goods that will probably be returned. The journal entry to recognized the probable return is:

Sales return 50,000

Allowance for sales return

H. Sales Discount
Entities usually offer cash discounts to credit customers. A cash discount is a reduction from an
invoice price by reason of prompt payment.

A cash discount is known as sales discount on the part of the seller and purchase discount on the
part of the buyer. A cash discount may be expressed as 5/10, n/30. This means that the customer
is entitled to a 5% discount if payment made in 10 days from the invoice date, and no discount
if fails to pay but the invoice must be paid within 30 days from period of invoice.

I. Methods of Recording Credit Sales

1. Gross method 2. Net method

Illustration - Gross Method

1. Sale of merchandise for $100,000, terms 5/10, n/30.

Accounts receivable 100,000

Sales

2. Assume collection is made within the discount period.

Cash 95,000
Sales discount 5,000
Accounts receivable

3. Assume collection is made beyond the discount period.

Cash 100,000
Accounts receivable
 Illustration - Net Method

1. Sale of merchandise for $100,000, terms 5/10, n/30.

Accounts receivable 95,000

Sales

2. Assume collection is made within the discount period.

Cash 95,000
Accounts receivable

3. Assume collection is made beyond the discount period.

Cash 100,000
Accounts receivable
Sales discount forfeited

Note: The sales discount forfeited account is classified as other income.

J. Allowance for Sales Discount

If customers are granted cash discounts for prompt payment, then, conceptually estimates for
cash discounts on open accounts at the end of the period based on part experience shall be made.

For example, of the accounts receivable of $1,000,000 at the end of the period, it is reliably
estimated that discounts to be taken will amount to $50,000.

The adjustment to record the expected sales discount is:

Sales discount 50,000

Allowance for sales discount

Note: The adjustment may be reversed at the beginning of the next period in order that discounts
can then be charged normally to sales discount account.

K. Accounting for Bad Debts

Two methods are followed in accounting for this bad debt loss:
a. Allowance method
b. Direct write-off method

Allowance Method
 The allowance method requires recognition of a bad debt loss if the accounts are doubtful for
collection. The journal entry to recognize the doubtful accounts is:

Doubtful accounts xx
Allowance for doubtful accounts

If the doubtful accounts are subsequently found to be worthless or uncollectible, the accounts are
written off as follows:

Allowance for doubtful accounts xx

Accounts receivable

If the accounts written off is recovered:

Step 1 : Recharge the customer's account

Accounts receivable xx
Allowance for doubtful accounts

Step 2: Record the collection

Cash xx
Accounts receivable

Direct write-off Method

Illustration:

1. Accounts of $30,000 are considered doubtful for collection.

No entry is necessary karena tidak membuat cadangan pada awal

2. The accounts proved to be worthless.

Bad debts 30,000

Accounts receivable

3. The same accounts are recovered and collected.

Accounts receivable 30,000

Bad debts

Cash 30,000
Accounts receivable

L. Methods of Estimating Doubtful Accounts

1. Aging of receivable or statement of financial position approach

Illustration:

The following data are summarized in aging the accounts receivable at the end of
the period:
Experience
Balance rate

Not due 500,000 1%

1-30 days past due 300,000 2%
31-60 days past due 200,000 4%
61-90 days past due 100,000 7%
91-180 days past due 50,000 10%
181-365 days past due 30,000 30%
More than one year 20,000 50%
1,200,000

The allowance for doubtful account ahs a credit balance of $10,000 before adjustment,
therefore the doubtful accounts expense is determined as follows:

Required allowance
Less: Allowance balance before adjustment
Doubtful accounts expense

Adjustment for doubtful account expense:

Doubtful accounts 40,000

Allowance for doubtful accounts

2. Percent of accounts receivable

Illustration:

The balance of accounts receivable is $2,000,000 and the credit balance in the
allowance for doubtful accounts is $10,000. Doubtful accounts are estimated at 3%
of accounts receivable.

Required allowance (3% x $2,000,000)

Less: Credit balance in allowance
Doubtful account expense

Adjusting entry:

Doubtful accounts 50,000

 Allowance for doubtful accounts

3. Percent of sales

The amount of sales for the year is multiplied by a certain rate to get the doubtful
accounts expense. The rate maybe applied on credit sales or total sales.

However, this approach may prove unsatisfactory when there is a considerable

fluctuation in the proportion of cash and credit sales.
Illustration:

The following accounts are gathered from the ledger:

Accounts receivable 1,000,000

Sales 5,050,000
Sales returns 50,000
Allowance for doubtful accounts 20,000

It is estimated that doubtful accounts is 1% of net sales, therefore the entry is:

Doubtful accounts 50,000

Allowance for doubtful accounts

M. Correction in Allowance for Doubtful Accounts

Where the allowance is inadequate or excessive, the correction is to be reported in the income
statement either as an addition to or subtraction from doubtful accounts expense.

Accordingly, inadequate allowance is adjusted as:

Doubtful accounts xx
Allowance for doubtful accounts

An excessive allowance is adjusted as:

Allowance for doubtful accounts xx

Doubtful accounts

When the allowance is excessive, there is a corollary problem when the discrepancy is more
than the debit balance in the doubtful accounts expense.

Illustration

Correction due to excessive allowance

Doubtful account expense balance
 Adjustment:

Allowance for doubtful accounts 30,000

Doubtful accounts
Miscellaneous income

N. Debit Balance in Allowance Account

Illustration:

Allowance for doubtful accounts (credit), January 1

Accounts written-off during the year

Entry for the written-off

Allowance for doubtful accounts 50,000

Accounts receivable

Therefore, on December 31, before adjustment, the allowance for doubtful accounts
balance is debit, $20,000.

If on December 31, the required allowance is $40,000 the adjustment should be:

Doubtful accounts 60,000

Allowance for doubtful accounts

Required allowance
Debit balance of allowance
Doubtful accounts expense

O. Notes Receivable
Notes receivable are claims supported by formal promises to pay usually in the form of notes.

A negotiable promissory note is an unconditional promise in writing by one person to another,

signed by the maker, engaging to pay on demand or at a fixed determinable future time a sum
certain in money to order or to bearer.

Simply stated, a promissory note is a written contract in which the one person, known as the
maker, promises to pay another person, known as the payee a definite sum of money.

P. Dishonored Notes
When a promissory note matures and is not paid, it is dais to be dishonored:
 Dishonored notes should be recorded as follows:

Accounts receivable xx
Notes receivable
Interest income

Q. Measurement of Notes Receivable

Conceptually, notes receivable shall be measured initially at present value. The present value
is the sum of all future cash flows discounted sing the prevailing market rate of interest for
similar notes. The prevailing market rate of interest is actually the effective interest rate.

However, short-term notes receivable shall be measured at face value.

Interest bearing long-term notes are measured at face value which is actually the present value
upon issuance.

Noninterest-bearing long-term notes are measured at present value which is the discounted value
of the future cash flows using effective interest rate.

Subsequent to the initial recognition, long-term notes receivable shall be measured at amortized
cost using the effective interest method.

The amortized cost is the amount at which the note receivable is measured initially:

a. Minus principal payment

b. Plus or minus cumulative amortization of any difference between the initial
carrying amount and the principal maturity amount.
c. Minus reduction for impairment or uncollectibility.

Illustration-Interest bearing note

An entity owned a tract of land costing $800,000 and sold the land for $1,000,000. The entity
received a 3-year note for $1,000,000 plus interest of 12% compounded annually.

Note: The selling price of $1,000,000 is reasonably assumed to be the present value of
the note because the note is interest bearing.

Journal entries - First year

Notes receivable 1,000,000

Land
Gain on sale of land
 Accrued interest receivable 120,000
Interest income
(12% x $1,000,000)

Journal entries - second year

Accrued interest receivable 134,400

Interest income

Face value
Interest (first year)
Total
Rate
Interest (second year)

Journal entries - third year

Cash 1,404,928
Notes receivable
Accrued interest receivable
Interest income

Face value
Interest accrued
First year 120,000
Second year 134,400
Total
Interest third year (1,254,400 x 12%)
Cash received

Illustration 1 - Noninterest bearing note

An entity manufactures and sell machinery. On January 1, 2017, the entity sold
machinery costing $280,000 for $400,000.

The buyer signed a noninterest bearing note for $400,000, payable in four equal
installments every December 31. The cash sale price of the machinery is $350,000.

Face value of the note

Present value-cash sales price
Unearned interest income

Cash sales price

Cost of machinery
Gross income
 Journal entries in 2017:

a. To record the sale

Note receivable 400,000

Sales
Unearned interest income

b. To record the first installment collection:

Cash 100,000
Notes receivable

c. To recognized the unearned interest as income

Unearned interest 20,000

Interest income

Note
Year receivable Fraction

2017 400,000 4/10

2018 300,000 3/10
2019 200,000 2/10
2020 100,000 1/10
1,000,000

Illustration 2 - Noninterest bearing note

On January 1, 2017, an entity sold an equipment with a cost of $250,000 for $400,000.

The buyer paid a down payment of $100,000 and signed a noninterest bearing note for
$300,000 payable in equal annual installment of $100,000 every December 31.

The prevailing interest rate for a note of this type is 10%. The present value of an
annuity of 1 for three periods at 10% is 2.4869.

Computation:

Face value of note

Present value of note ($100,000 x 2.4869)
Unearned interest income

PV of note
Cash received-DP
 Sales price
Cost of equipment
Gain on sale of equipment

Journal entries in 2017:

a. To record the sale

Cash 100,000
Notes receivable 300,000
Equipment
Gain on sale of equipment
Unearned interest income

b. To record the first installment collection:

Cash 100,000
Note receivable

c. To recognized the unearned interest as income

Unearned interest 24,869

Interest income

Annual Interest
Date Collection Income Principal
Jan. 1, 2017
Dec. 31, 2017 100000 24,869 75,131
Dec. 31, 2018 100000 17,356 82,644
Dec. 31, 2019 100000 9,085 90,915

Illustration 3 - Noninterest bearing note

On January 1, 2017, an entity sold equipment costing $600,000 with accumulated depreciation
of $250,000. The entity received consideration of $100,000 cash and a $400,000 noninterest
bearing note due on January 1, 2020.

The prevailing rate of interest for a note of this type is 10%. The present value of 1 at 10% for 3
years is 0.7513.

The note is collectible on a lump sum basis after 3 years.

Computation:

Face of note
Present value of note (400,000 x 0.7513)
Unearned interest income

PV of note
Cash received
Sales price
Carrying amount f equipment (600,000-250,000)
Gain on sale

Journal entries in 2017:

Jan. 1 Cash 100,000

Note receivable 400,000
Accumulated depreciation 250,000
Equipment
Gain on sale of equipment
Unearned interest income

Dec. 31 Unearned interest income 30,052

Interest income

Interest Unearned
Date Income Interest

Jan. 1, 2017 99,480

Dec. 31, 2017 30,052 69,428
Dec. 31, 2018 33,057 36,371
Dec. 31, 2019 36,371 0

Journal entries in 2018

Dec. 31 Unearned interest income 33,057

Interest income

Journal entries in 2019

Dec. 31 Unearned interest income 36,371

Interest income

Journal entries in 2020

Jan. 1 Cash 400,000

Note receivable
e receivables

lizable value of

credit sales.
ts written-off

for doubtful accounts

ntage of sales

ring note receivable.

Trade and non trade

Receivable Account Receivable (piutang dagang)

cash or another advance pay employ

Advance to share holders

de receivables.

in the ordinary

f merchandise

mal operating cycle

assified as

employees. If
ncome, etc.

r damages, claims
as current assets.

g from overpayment,
balances are
ther customers'
ounts receivable

air value of the

nvoice amount.

e face value.
is equal to the
te of interest for
measured at face
present value.

amount. However,
ue, meaning the

stments which in

d at above their
 , the following

vested in the buyer

e up to the point of

d is vested in the
on charge from

s not yet paid. Thus

e freight charge is

is already paid by

me when the

The terms are

charged of $5,000.

100,000
5,000
 100,000

hat some customers

uction in the amount

d represents selling
he probable return is:

50,000

eduction from an

ase discount on the

s that the customer
and no discount

100,000

100,000

100,000
 95,000

100,000

95,000
5,000

ly estimates for
ence shall be made.

, it is reliably

50,000

der that discounts

are doubtful for

xx

e, the accounts are

xx

xx

xx

uat cadangan pada awal

30,000

30,000

30,000
at the end of

Required
allowance

5,000
6,000
8,000
7,000
5,000
9,000
10,000
50,000

before adjustment,

50,000
10,000
40,000

40,000

ance in the
stimated at 3%

60,000
10,000
50,000
 50,000

the doubtful

nsiderable

5,000,000

50,000

ed in the income

xx

xx

epancy is more

30,000
20,000
 20,000
10,000

30,000
50,000

50,000

oubtful accounts

t should be:

60,000

40,000
20,000
60,000

e form of notes.

son to another,
ture time a sum

known as the
 xx
xx

e present value
interest for

he present value

he discounted value

ured at amortized

000. The entity

800,000
200,000
 120,000

134,400

1,000,000
120,000
1,120,000
12%
134,400

1,000,000
254,400
150,528

1,000,000

254,400
1,254,400
150,528
1,404,928

e entity sold

n four equal
ery is $350,000.

400,000
350,000
50,000

350,000
280,000
70,000
 350,000
50,000

1,000,000

20,000

Interest
Income

20,000
15,000
10,000
5,000
50,000

,000 for $400,000.

st bearing note for

cember 31.

nt value of an

300,000
248,690
51,310

248,690
100,000
 348,690
250,000
98,690

250,000
98,690
51,310

100,000

24,869

Present
value
248,690
173,559
90,915
0

accumulated depreciation
d a $400,000 noninterest

sent value of 1 at 10% for 3

400,000
 300,520
99,480

300,520
100,000
400,520
350,000
50,520

600,000
50,520
99,480

30,052

Present
Value

300,520
330,572
363,629
400,000

33,057

36,371

400,000
piutang dagang)
7 LEARNING CHECK
1. Define receivables.
Receivables are financial assets that represent a contractual right to received cash or anothe
financial asset from another entity.

2. Explain the classification and presentation of receivables in the statement

of financial position.
1. Accounts receivable:
Are amounts owed by customers on account.
2. Notes receivable:
Represent claims for which formal instruments of credit are issued as evidence of debt.
3. Other receivables:
Non-trade receivables including interest receivable, loans to company officers, advances to e
Generally classified and reported as separate items in the balance sheet.

receivables are typically shown as current assets on the balance sheet. Depending on time t
these receivables may be short term or long term and are shown on the balance sheet acco

3. Explain the allowance method and direct write-off method of accounting

for bad debts.

The allowance method requires recognition of a bad debt loss if the accounts are doubtful fo

If the doubtful accounts are subsequently found to be worthless or uncollectible,

The direct write-off method recognizes bad accounts as an expense at the point when judge
to be uncollectible and is the required method for federal income tax purposes. 
The allowance method provides in advance for uncollectible accounts think of as setting asid

4. Give the proforma entry under the allowance method for each of the following:

a. Doubtful accounts
Doubtful accounts
Allowance for doubtful accounts

b. Accounts receivable proved to be worthless

Allowance for doubtful accounts
Accounts receivable
 c. Recovery of accounts previously written-off
Step 1 : Recharge the customer's account

Accounts receivable
Allowance for doubtful accounts

Step 2: Record the collection

Cash
Accounts receivable

Give the proforma entry under the direct-write off method for each of the
following:

a. Doubtful accounts
No entry is necessary

b. Accounts receivable proved to be worthless

Bad debts
Accounts receivable

c. Recovery of accounts previously written-off

Accounts receivable
Bad debts

Cash
Accounts receivable

5. Explain the presentation of doubtful accounts in the income statement.

 is a contra account that nets against the total receivables presented on the balance sheet 
only the amounts expected to be paid. The allowance for doubtful accounts estimates the
percentage of accounts receivable that are expected to be uncollectible

6. What are the three methods of estimating doubtful accounts?

1. Aging of receivable or statement of financial position approach
2. Percent of accounts receivable
3. Percent of sales

7. When is an account past due?

that means the minimum required payment was not applied to the account as of the last pay
Your account technically becomes past due the moment after you miss the payment
as the agreement

8. What does a debit balance in the allowance for doubtful accounts indicate?
 means a business has an uncollectible debt. This account allows businesses to show the d
Balance sheets show a business' financial position including its income and debts owed

9. Define notes receivable.

Notes Receivable are claims that a credit instrument is issued as evidence of debt, such as n
Credit instruments typically require the debtor to pay interest and extend it for a period of 30

10. What is a negotiable promissory note?

is unconditional promise made in writing by one person to another to pay on demand to the p
or at fixed or ascertainable future time, sum certain in money, to order or to bearer. These n

11. Explain the treatment of dishonored notes receivable.

A dishonored note is a note that the maker failed to pay at maturity. Since the note has ma
the holder or payee removes the note from Notes Receivable and records the amount due i
At the maturity date of a note, the maker is responsible for the principal plus interest. as bad

12. What is the meaning of "present value" of notes receivable.

Present value of notes receivable. = Present value of face amount + Present value of int
Present value calculation is based on market interest rate.
right to received cash or another

he statement

sued as evidence of debt.

company officers, advances to employees, and income taxes refundable.

ance sheet.

nce sheet. Depending on time to maturity,

own on the balance sheet accordingly

accounting

s if the accounts are doubtful for collection.

ss or uncollectible,

xpense at the point when judged

me tax purposes. 
accounts think of as setting aside money in a reserve account. 

h of the following:
each of the

esented on the balance sheet to reflect

ubtful accounts estimates the

n approach

o the account as of the last payment due date.

r you miss the payment

unts indicate?
allows businesses to show the debt on a balance sheet. 
ts income and debts owed

d as evidence of debt, such as notes payable.

and extend it for a period of 30 days or more

other to pay on demand to the payee,

y, to order or to bearer. These notes are governed by the Uniform Commercial Code.

maturity. Since the note has matured,

e and records the amount due in Accounts Receivable.
e principal plus interest. as bad debt

amount + Present value of interest payments. 

7 problems
Problem 7-1 Multiple Choice
1. Trade receivables are classified as current assets if they are reasonably expected to
be collected

a. Within one year.

b. Within the normal operating cycle
c. Within one year or within the operating cycle, whichever is shorter.
d. Within one year or within the operating cycle, whichever is longer.

2. Nontrade receivables are classified as current assets only if they are reasonably
expected to be realized in cash

a. Within one year or within the operating cycle, whichever is shorter.

b. Within one year or within the operating cycle, whichever is longer.
c. Within the normal operating cycle
d. Within one year, the length of the operating cycle notwithstanding.

3. Which nontrade receivables are usually classified as noncurrent?

a. Advances to supplier
b. Advances to affiliates
c. Advances to employees
d. Dividend receivable

4. Accounts receivable shall be measured initially at

a. Face value.
b. Discounted value.
c. Maturity value.
d. Net realizable value.

5. Which method of recording bad debts loss is consistent with accrual accounting?

a. Allowance method
b. Direct write off method
c. Percent of sales method
d. Percent of accounts receivable method

6. The advantage of relating company's bad debt experience to its accounts receivable
is that this approach

a. Gives a reasonably correct measurement of accounts receivable in the statement

of financial position
b. Relates bad debt loss to the period of sale.
c. Is the only generally accepted method of valuing accounts receivable.
d. Makes estimates of uncollectible accounts necessary.
 7. When the allowance method of recognizing doubtful accounts is used, the entry to
record the write-off of a specific account would

a. Decrease both accounts receivable and allowance for doubtful accounts.

b. Decrease accounts receivable and increase allowance for doubtful accounts.
c. Increase both accounts receivable and the allowance for doubtful accounts.
d. Increase accounts receivable and decrease the allowance for doubtful accounts.

8. When allowance method of recognizing bad debts expense is used, the entries at
the time of collection of an account previously written off would

a. Decrease the allowance for doubtful accounts.

b. Increase net income.
c. Have no effect on the allowance for doubtful accounts.
d. Have no effect on net income.

9. When an accounts receivable aging schedule is prepared, a series of computations

is made to determine the estimated uncollectible accounts. The resulting amount
from this aging schedule

a. When added to the total accounts written off during the year is the desired
credit balance of the allowance for doubtful accounts at year-end.
b. Is the amount of doubtful accounts expense for the year.
c. Is the amount that should be added to the beginning allowance for doubtful
accounts to get the doubtful accounts expense for the year.
d. Is the amount of desired credit balance of the allowance for doubtful accounts
to be reported at year-end.

10. Receivable from subsidiaries shall be classified as

a. Current assets.
b. Noncurrent assets.
c. Either as current or noncurrent depending on the expectation of realizing them
within one year or over one year.
d. Partly current and partly noncurrent.

Problem 7-2
On December 31, 2018, the "Receivables" account of Kim Company shows a debit balance of
$2,000,000. The allowance for doubtful accounts shows a credit balance of $50,000.
Subsidiary details show the following:

Trade accounts receivable $

Trade notes receivable
Installment receivable, normally due 1 to 2 years
Customer's accounts reporting credit balances arising
from sales returns
Advance payments for purchase of merchandise karena pembayaran diawal atas sebuah pemb
Customers' accounts reporting credit balances arising
from advance payments
Cash advance to subsidiary karena pembayaran diawal atas sebuah pembelian
Claim from insurance company
Subscriptions receivable due in 60 days
Accrued interest receivable
$

Required:
a. Prepare one compound entry to reclassify the receivables account.
b. Compute the amount to be presented as "trade and other receivables" under current
assets.
c. Indicate the classification and presentation of the other items excluded from "trade
and other receivables".

Problem 7-3
The following data were taken from the records of Inter Company for the year ended
December 31, 2018:

Sales on account $
Notes received to settle accounts
Provision for doubtful accounts masih sisahin
Accounts receivable determined to be worthless sudah pasti tidak tertagih
Merchandise returned by customer
Collections received to settle accounts
Discounts permitted to be taken by customers
Collections received in settlement of notes

Required:
1. Prepare all journal entries to record the above transactions.
2. Balance of Notes receivable
3. Net realizable value of accounts receivable.

Problem 7-4
At the end of the year, before making any adjustments, the trial balance of Main Company
includes the following items among others:

Accounts receivable $ 500,000

Notes receivable 200,000
Allowance for doubtful accounts $
Sales
Sales returns and allowances 30,000
penjualan kotor
Sales discounts 20,000

Required:
Prepare the appropriate adjusting entry to provide for doubtful accounts under each of the
following independent assumptions:

a. Main Company experience indicates that 75% of all sales are credit sales and that an
average 2% of credit sales may prove uncollectible.
b. One percent of gross sales may prove uncollectible.
c. An analysis of the aging of trade receivables indicates that accounts receivable in the
amount of $80,000 may prove uncollectible.
d. The company policy is to maintain an allowance for doubtful accounts equal to 10% of the
 outstanding accounts receivable.

Problem 7-5
On January 1, 2018, Lambert Company showed the following balances:

Accounts receivable $
Allowance for doubtful accounts

The following summary transactions occurred during the current year:

1. Sales on account, 2/10, n/30 $

2. Collections from customers within discount period
3. Collections from customers beyond the discount period
4. Accounts receivable written off as worthless
5. Recovery of accounts receivable previously written off not included
in the above collections
6. Credit memo for sales return

Required:
a. Prepare all indicated entries pertaining to accounts receivable.
b. Prepare the adjustment for doubtful accounts on December 31, 2018 if the company uses
the percentage of accounts receivable method?
c. What is the net realizable value of accounts receivable on December 31, 2018?

Problem 7-6
The balances of selected accounts taken from the January 1, 2018 statement of financial
position of Ness Company were as follows:

Accounts receivable $
Allowance for doubtful accounts

The following summary transactions affecting accounts receivable occurred during the
current year:

Sales-all on accounts (2/20, 1/15, n/60) $

Cash received from customers
The cash received includes the following:
Customers paying within the 10-day discount period
Customers paying within the 15-day discount period
Recovery of accounts written-off
Customers paying beyond the discount period
Accounts receivable written-off as worthless
Credit memo for sales return

Required:
Determine the balance of accounts receivable on December 31, 2018.
Problem 7-7
Moore Company reported the following account balances on January 1, 2018:

Accounts receivable $ 1,500,000

Allowance for doubtful accounts 90,000

During 2018, Moore Company recorded credit sales of $9,000,000 and interim provision for
doubtful accounts at 2% of credit sales. Accounts of $100,000 were written off during the year
but accounts of $20,000 were subsequently recovered.

The balance of accounts receivable on December 31, 2018 amounted to $2,000,000 and aged as
follows:
Estimated
Classification Balance Uncollectible

1-60 days $ 1,000,000 1% 10,000

61-120 days 400,000 5% 20,000
121-180 days 300,000 10% 30,000
181-360 days 200,000 25% 50,000
More than one year 100,000 60,000 110,000
$ 2,000,000

Based on the review of collectability of the account balances, additional receivables of $40,000
under the classification "more than one year" are to be written off on December 31, 2018.

Required:
1. Required allowance for doubtful accounts on December 31, 2018. 170,000
2. Doubtful accounts expense for 2018. $200,000
3. Adjusting entry to correct the recorded doubtful accounts.
4. Net realizable value on December 31, 2018. 1,330,000

Problem 7-8
Gaze Company sells directly to customers. On January 1, 2018, the balance of accounts
receivable was $250,000 while allowance for doubtful accounts was a credit of $20,000. The
following data are available since 2005:

Credit sales Written-off Recoveries

2015 $ 1,100,000 $ 26,000 2,000

2016 1,200,000 29,000 3,000
2017 1,500,000 30,000 4,000
2018 3,000,000 40,000 5,000

Doubtful accounts are provided for as a percentage of credit sales. The accountant calculates
the percentage annually by using the experience of the three years prior to the current year.
The formula is accounts written-off less recoveries expressed as a percentage of the credit
sales for the period. Cash receipts in 2018 from credit sales including recoveries amounted
to $2,615,000.

Required:
1. What is the percentage to be used in computing the allowance for doubtful accounts
on December 31, 2018?
2. How much is the provision for doubtful accounts for 2018?
3. What is the ledger balance of accounts receivable on December 31, 2018?
4. What is the ledger balance of the allowance for doubtful accounts after necessary
adjustments on December 31, 2018?

Problem 7-9
From inception of operations in 2014, Suisse Company carried no allowance for doubtful
accounts. Uncollectible receivables were expensed as written-off and recoveries were
credited to income as collected. On March 1, 2018 after the 2017 financial statements were
issued, management recognized that Suisse company's accounting policy with respect to
doubtful accounts was not correct, and determined that an allowance for doubtful accounts
was necessary. A policy was established to maintain an allowance for doubtful accounts
based on historical bad debts loss percentage applied to year-end accounts receivable. The
historical bad debts loss percentage is to be recomputed each year based on all available
past years up to maximum of five years. Information for five years is as follow:

Accounts
Year Credit Sales Written-off Recoveries

2014 $ 1,500,000 $ 15,000 $ 0 15,000

2015 2,200,000 40,000 2,000 38,000
2016 3,000,000 50,000 3,000 47,000
2017 3,300,000 65,000 5,000 60,000
2018 4,000,000 88,000 10,000 78,000

Account receivable balances were $1,250,000 and $2,000,000 at December 31, 2017 and
December 31, 2018 respectively.

Required:
1. Journal entry to set up the allowance for doubtful accounts as of January 1, 2018.
2. Doubtful accounts expense for 2018.
3. Net realizable value of accounts receivable on December 31, 2018.
 a Trade accounts receivable
Trade notes receivable
Installment receivable, normally due 1 to 2 years
Advance payments for purchase of merchandise
775,000 Cash advance to subsidiary
100,000 Claim from insurance company
300,000 Subscriptions receivable due in 60 days
Accrued interest receivable
(30,000) Customer's accounts reporting credit balances arising
150,000 Unearned revenue
Total Receivable
(20,000)
400,000 b Trade accounts receivable
15,000 Allowance for doubtful account
300,000 Receivable
 10,000 Trade notes receivable
2,000,000 Advance payments for purchase of merchandise
Installment receivable, normally due 1 to 2 years
Claim from insurance company
Subscriptions receivable due in 60 days
Accrued interest receivable
Trade and other receivable

1 Sales on account
account receivable 3,600,000
sales 3,600,000

3,600,000 Notes received to settle accounts

400,000 Notes receivable 400,000
90,000 Account receivable 400,000
20,000
15,000 Provision for doubtful accounts
2,450,000 Doubtful accounts 90,000
45,000 Allowance for doubtful accounts
150,000
Accounts receivable determined to be worthless
Allowance for doubtful accounts 20,000
account receivable

Merchandise returned by customer

Sales return 15,000

account receivable 15,000

Credit sales
5,000,000 75% 3,750,000
2% 75,000
a Doubtful account 75,000
20,000 Allowance for doubtful account 75,000
5,000,000
b Doubtful account 50,000
Allowance for doubtful account 50,000

c Doubtful account $60,000

Allowance for doubtful account $60,000

d Doubtful account 30,000

Account Receivable 30,000
Accounts receivable 500,000 10%
50,000
 a 1. Sales on account, 2/10, n/30
Accounts receivable 7,000,000
Sales 7,000,000
1,000,000
40,000 4% 2. Collections from customers within discount period
Cash 2,450,000
Sales discount 50,000
Accounts receivable 2,500,000
7,000,000
2,450,000 3. Collections from customers beyond the discount period
3,900,000 Cash 3,900,000
30,000 Accounts receivable 3,900,000

10,000 4. Accounts receivable written off as worthless

70,000 Allowance for doubtful accounts 30,000
Account receivable 30,000

5. Recovery of accounts receivable previously written off not included

in the above collections
Accounts receivable 10,000
Allowance for doubtful account 10,000

Cash 10,000
Account receivable 10,000

Accounts receivable 1,500,000

Allowance for doubtful accounts
Sales-all on accounts (2/20, 1/15, n/60) 7,935,000
1,500,000 Customers paying
60,000 Customers paying
Recovery of accounts written-off 15,000
Customers paying beyond the discount period
Accounts receivable written-off as worthless
Credit memo for sales return
7,935,000 9,450,000
8,000,000 1,205,000

4,410,000 4,500,000 90,000

2,475,000 2,500,000 25,000
15,000 115,000
? 1,100,000
55,000
30,000
written off acc recovered
$100,000 $20,000
$80,000 2. Doubtful accounts expense for 2018.
$9,000,000 2% $120,000 written off $100,000
$180,000 170,000 acc recovered $20,000
($90,000) written off $40,000
$200,000 1. Required allowance for doubtful accounts on De 170,000
Allowance for doubtful accounts 90,000
$200,000

1. Required allowance for doubtful accounts on December 31, 2018.

170,000

3 doubtful account $20,000

Allowance for doubtful $20,000

4. Net realizable value on December 31, 2018.

1,790,000
12,190,000

24,000 2%
26,000 2%
34,000 2%
35,000 1%

60,000
2%% because the company has never made an allowance, 2% of the experience of bad debts in previous years
60,000
325,000
doubtfull account expense 60,000
Allowance for doubtfull accou 60,000

1. Journal entry to set up the allowance for doubtful accounts as of January 1, 2018.
allowance for doubtful account 160,000
1% bad debt expense 160,000
2%
2% 2. Doubtful accounts expense for 2018.
2% 78,000
2%
3. Net realizable value of accounts receivable on December 31, 2018.
1,922,000
 775,000 c Cash advance to subsidiary 400,000
100,000 the advances to subsidiary or affiliate account is
300,000 The customers' account with credit balances are
150,000
400,000
15,000
300,000
10,000
(30,000)
(20,000)
2,000,000

775,000 current asset

(50,000) current liability
725,000 crt asset - crt liability
 100,000
150,000
300,000
15,000
300,000
10,000
1,600,000

Collections received to settle accounts 2

cash 2,450,000
account receivable 2,450,000
3
Discounts permitted to be taken by customers
sales discount 45,000
account receivable 45,000

Collections received in settlement of notes

cash 150,000
90,000 note receivable 150,000

20,000

jika cadangan kerugian piutang lebih besar dari pada piutang tak tertagih maka jurnal
cadangan kerugian pitang
piutang

jika cadangan kerugian piutang lebih kecil dari pada piutang tak tertagih maka jurnal
beban kerugian pitang
piutang
 6. Credit memo for sales return
Sales return and allowances 70,000
Accounts receivable 70,000

A/R debit 8,010,000

A/R credit 6,510,000
Accounts receivable 1,500,000 0.04 60,000
Allowance for doubtful accounts 20,000
B 40,000

net realizable value of account receivable

Accounts receivable 1,500,000
Allowance for doubtful accounts 60,000
C 1,440,000

Accounts receivable
Sales-all on accounts (2/20, 1/15, n/60)
60,000 Customers paying within not discount period
Customers paying within not discount period
4,500,000 Customers paying beyond the discount period
2,500,000 Accounts receivable written-off as worthless
Credit memo for sales return
1,100,000 Allowance for doubtfull account
55,000 Recovery of accounts written-off
30,000
$8,245,000

Accounts receivable
Sales-all on accounts (2/20, 1/15, n/60)
Recovery of accounts written-off
Cash received from customers
sales discount
Accounts receivable written-off as worthless
Credit memo for sales return
subsidiary or affiliate account is classified as long term investment
account with credit balances are reclassified as payables under current liabilities
 400,000
$150,000 250,000

670,000
670,000
Allowance for doubtful accounts 70,000 600,000
70,000
 d k
1,500,000
7,935,000
4,500,000
2,500,000
1,100,000
55,000
30,000

15,000
9,435,000 $8,200,000
1,235,000

1,500,000
7,935,000
15,000
8,000,000
115,000
55,000
30,000
9,450,000 8,200,000
1,250,000