Lesson 13- Accounting for Receivables
Learning Goals: By the end of this lesson you will be able to
- Understand Accounts Receivable
- Record Business transactions related to accounts receivable transactions
Critical thinking statement
If you go to the pond today the only birds you will see are swans.
Please find out if the following claims are assumptios or not
Claims
- There will be no ducks in the pond
- All swans are white
- There will be swans at the pond
Receivable
The term receivables refers to amounts owed to a company by individuals and other companies that are expected to be collected in cash. The most common types of receivables are accounts receivable and notes receivable.
Allowance method
The Allowance Method of accounting for bad debts involves estimating the no collectable accounts at the end of each period
The party promising to pay is called the maker. The party who is to receive the payment is called the payee.
Accounts Receivable The term receivables refers to amounts owed to a company by individuals and other companies that are expected to be collected in cash. The most common types of receivables are accounts receivable and notes receivable.
The two most common types of receivables are accounts and notes receivable:
Accounts receivable are amounts owed by customers on account resulting from the sale of goods or services. These receivables are generally expected to be collected within 30 days or so, and are classified as current assets. Accounts receivable are usually the most common type of claim held by a company.
Notes receivable are claims for which formal instruments of credit are issued as proof of the debt. A note has a time period that extends for 30 days or longer and normally requires the debtor to pay interest. Notes receivable may be current or long-term assets, depending on their due dates.
Notes and accounts receivable that result from sale transactions are often called trade receivables.
APPLICATION
In year 2014 due to huge sales promotion acccounts receivables increased and profit also increased.
In 2015 customers defaulted on amounts owed.
What will happen to accounts receivable and Bad debt.?
What will happen to profit?
Work in a group and practice your presentation