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Chapter 9 Receivables Accounting Notes

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Accounting Chapter 9: Receivables: Includes all money claims against other entities, including people, companies, and other organizations ➔ Significant portion of the total current assets Notes receivable: Amounts that customers owe for which a formal, written instrument of credit has been issued ➔ Note is a written promise to pay a specific amount of money at a future date ➔ Used when a company is short on cash and unable to pay a creditor Other receivables: Include interest receivable, taxes receivable, and receivables from officers or employees ➔ If they are expected to be collected within one year, they are classified as current assets ➔ If collection is expected beyond one year, they are classified as noncurrent assets and reported under the caption investments Bad debt expense: The operating expense recorded from uncollectible receivables Indications that an account may be uncollectible: ➔ The receivable is past due ➔ The customer does not respond to the company’s attempts to collect ➔ The customer files for bankruptcy ➔ The customer closes its business ➔ The company cannot locate the customer Two methods of accounting for uncollectible receivables: 1. The direct write-off method: Records bad debt expense only when an account is determined to be worthless ➔ Used by small companies and companies with few receivables (receivables are a small part of current assets) 2. Allowance method: Records bad debt expense by estimating uncollectible accounts a ...
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