Notes receivable

Financial Accounting: Receivables

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• published: 30 May 2013
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Introduction to Financial Accounting Receivables (Chapter 8) March 25th, 2013 by Professor Victoria Chiu The Professor starts this lecture off with a review of topics she had covered in the previous lecture (uncollectible accounts & how to write them off, percent-of-sales method, and aging of accounts method as well as the recovery of accounts that were once deemed uncollectible). A summary of all the journal entries involved for these is shown (starting with normal sale, then recording an uncollectible expense, then collecting cash and writing off accounts receivable that you deem uncollectible, and then recovering accounts receivable). The direct write-off method is also covered (defined) as well as the relevant journal entries involved. The issues and problems brought forth by the direct write-off method are also discussed such as the possibility of overstating accounts receivable and the violation of matching principle. After this, notes receivable are revisited (along with an illustration of a promissory note). How to identify the maturity date of a note is also discussed. An exercise is also performed where the maturity date of a note must be found. Following this, the Professor walks through the steps of calculating interest. While interest is always expressed as an annual rate (based on an entire year), sometimes money is paid back in less time than a year. Thus, one must know how to calculate interest per month or semiannually based on an annual rate. The accrual of interest revenue is also covered. When interest is earned but not collected on outstanding notes, one must keep track of how much interest their outstanding lent out money (or invested money) has "earned" for them. ------ QUICK NAVIGATION ------ Video Begins with Recap of Previous Lecture (Review Accounting for Uncollectibles / Bad Debts) Allowance Method: 2:29 Percent-of-Sales Method: 3:48 Aging of Accounts Method: 6:45 Writing off Uncollectible Accounts: 12:09 Recovery of Accounts: 14:06 Summary of Entries: 17:12 Direct Write-Off Method for Uncollectibles: 20:22 Problems with Direct Write-Off Method: 23:54 Direct Write-Off Recovery of Debt: 26:40 Account for Notes Receivables: 30:57 Notes Receivable (promissory note illustration): 31:05 Identifying Maturity Date: 35:30 Determine the Maturity Date: 37:25 Multiple Choice Exercise: 39:26 Computing Interest: 42:02 Accruing Interest Revenue: 46:28 Accruing Interest Timeline: 51:20 Loaning out Money (summary): 57:00 Sell Merchandise in Exchange for Notes Receivable (Journal Entries): 58:24 Converting Accounts Receivable to Notes Receivable: 1:00:40 Dishonored Notes Receivable: 1:03:32 Example S8-10 - Accounting for a Note Receivable: 1:06:54 Example S8-10 Solutions Review: 1:10:39