Chapter 8 Flashcards
Define Accounts Receivable
Verbal promise to pay, generally expected to be collected within 30 days and result from sales transactions
Define Notes Receivable
Written promise to pay, timelines are variable but typically longer than 30 days, normally requires interest to be paid on the amount borrowed and result from sales transactions
What are others receivable
Receivables that do not result from the operation of the business
What is the formula for net AR
Gross AR - Allowance for Doubtful Accounts
What are some characteristic of the Allowance for Doubtful Accounts (AFDA) account?
Always in credit position after adjusting entries
AFDA is always a % of outstanding AR
Bad Debt adjusting entry brings AFDA to proper amount
What is the Write-Off journal entry?
Dr: AFDA
Cr: AR
What is the journal entry for the first step of recovering an uncollectible account?
Dr: AR
Cr: AFDA
What is the journal entry for the second step of recovering an uncollectible account?
Dr: Cash
Cr: AR
What is the journal entry for measuring/recording uncollectible items?
Dr: Bad Debt Expense
Cr: AFDA
What is the formula for calculating the interest on a notes receivable?
Face Value of Note x Annual Interest Rate x Time in terms of one year
When can a note appear on the balance sheet?
If it is active/ still valid, the timeline has not expired
What are the two options when a note has been dishonoured?
If collection is expected note and interest transferred to AR
If not expected note and interest written off
