Receivables docx

Receivables Chapter 9 Accounts receivable Receivables Notes receivable Design internal controls for receivables. Objective 1 Establishing Internal Control ✔ What are some controls over accounts receivable? Separation of duties Approval for write-off Control over mail receipts Use the allowance method to account for uncollectibles and estimate uncollectibles by the percent of sales and aging approaches. Objective 2 The Credit Department ✔ Companies grant credit to customers in order to increase sales. ✔ The credit department evaluates customers who apply for credit cards. Uncollectible Accounts Expense Allowance method Direct write-off method Methods for Estimating Uncollectible Expense Percentage of Sales Aging of Receivables Percentage of Sales ✔ This is also called the income statement approach. ✔ It is based on prior experience of the business. ✔ It is computed as a percentage of credit sales. ✔ It ignores the current balance of the allowance account. ✔ The percentage used is adjusted as needed to reflect collection experience. Percentage of Sales Example ✔ The credit department of Ana’s Boutique estimates (based on prior experience) that 1% of net credit sales are uncollectible. ✔ Net credit sales for the year just ended were $500,000. ✔ What is the adjusting entry? ✔ $500,000 × 1% = $5,000 [...]... Accounts Aging of Receivables Example The allowance account is adjusted to this $143,000 balance: Assume that the account currently has a credit balance of $100,000 What is the adjustment? Aging of Receivables Uncollectible Account Expense 43,000 Allowance for Uncollectible Accounts 43,000 To record allowance for uncollectibles What if the account had a debit balance of $1,000? Aging of Receivables Allowance... specific customers are analyzed according to the length of time they remain outstanding Aging of Receivables Example Assume that International Hospital’s experience indicates the following: Length of time % uncollectible 2.0 31-60 days 61-90 days 90 + days 8.0 past collection 1-30 days 3.0 5.0 Aging of Receivables Example Length 1-30 31-60 61-90 90 + Total Amount $1,900,000 1,000,000 700,000 500,000 . Receivables Chapter 9 Accounts receivable Receivables Notes receivable Design internal controls for receivables. Objective 1 Establishing Internal. 30,000 61-90 700,000 5 35,000 90 + 500,000 8 40,000 Total $4,100,000 $143,000 Aging of Receivables Example Aging of Receivables Example ✔ The allowance account is adjusted to this $143,000 balance: ✔ Assume. account had a debit balance of $1,000? Aging of Receivables Allowance for Uncollectible Adjustment 1,000 144,000 Adjusted balance143,000 Aging of Receivables Comparing the Percentage of Sales