Receivables
Notes Receivable
and Interest Revenue
Receivables
Premise:
Receivables
Premise:
When you extend credit to customers…
Receivables
Premise:
When you extend credit to customers…
you know some customers won’t pay.
Receivables
Premise:
When you extend credit to customers…
you know some customers won’t pay.
Solutions:
Receivables
Premise:
When you extend credit to customers…
you know some customers won’t pay.
Solutions:
I.
Notes Receivable and Interest
Receivables
Premise:
When you extend credit to customers…
you know some customers won’t pay.
Solutions:
I.
Notes Receivable and Interest
II.
Uncollectible Accounts
Receivables
Premise:
When you extend credit to customers…
you know some customers won’t pay.
Solutions:
I.
Notes Receivable and Interest
II.
Uncollectible Accounts
Lecture
Receivables
Premise:
When you extend credit to customers…
you know some customers won’t pay.
Solutions:
I.
Notes Receivable and Interest
Today
II.
Uncollectible Accounts
Why Notes instead of Accounts Receivable?
charge (earn) interest
stronger legal claim
more liquid -- may be converted
to cash
 selling A/R called “factoring”
 selling Notes Receivable called
“discounting”
Calculating Interest
P x R x T
rate is an annual rate
time expressed as a portion of year
 government uses 365
 many banks use 360
 use 360 in homework / class
Short-cut “6% - 60 day” Method
$844. x 6% x 60 / 360 = ???
$844. = ???
Short-cut “6% - 60 day” Method
$844. x 6% x 60 / 360 = ???
$844. = ???
$844. = $8.44
Short-cut “6% - 60 day” Method
$844. x 6% x 60 / 360 = ???
$844. = $8.44
You try . . .
Short-cut “6% - 60 day” Method
$844. x 6% x 60 / 360 = ???
$844. = $8.44
You try . . .
6% for 30 days =
Short-cut “6% - 60 day” Method
$844. x 6% x 60 / 360 = ???
$844. = $8.44
You try . . .
6% for 30 days = $4.22
Short-cut “6% - 60 day” Method
$844. x 6% x 60 / 360 = ???
$844. = $8.44
You try . . .
6% for 30 days = $4.22
12% for 60 days =
Short-cut “6% - 60 day” Method
$844. x 6% x 60 / 360 = ???
$844. = $8.44
You try . . .
6% for 30 days = $4.22
12% for 60 days = $16.88
Determining the (Exact) Due Date
• Learn the number of days in
each month
• poem method
• knuckle method
• counting days if term of note
• stated in days
• stated in months
Example of Counting Days
A 60-day note dated August 17 is due ________ .
31
- 17
14
+ 30
44
+ ??
60
The note is due October 16.
Due Date When Stated in Months
RULE: “same day of the month”
Examples of Counting Months
A two-month note dated August 17 is due ______ .
October 17
Due Date When Stated in Months
RULE: “same day of the month”
EXCEPTION: how to deal with EOM
“last day of month”
Examples of Counting Months
A two-month note dated August 17 is due ______ .
October 17
A three-month note dated Nov. 30 is due ______ .
February 28
A three-month note dated April 30 is due ______ .
July 30
Exercise E9-10
page 442
8/16 Sold merchandise to Max Weinberg on
account, $4,000.
Date
Account Title
16 Accounts Receivable - MW
Ref
Debit
Credit
4,000
Sales
Should also record
reduction in inventory.
4,000
Exercise E9-10
page 442
11/1 Loaned $15,000 cash to Jorge Perez on a
1-year, 10% note.
Account Title
Date
1 Notes Receivable
Ref
Debit
Credit
15,000
Cash
What about the interest?
15,000
What about the discount?
Ever been lost ...
… at DisneyWorld?
… in a hospital?
… in an office building?
11/1
You are here!
Interest
interest
10/31
Exercise E9-10
page 442
12/11 Sold goods to Armie Hammer, Inc.,
receiving a $6,750, 90-day, 8% note.
Date
Account Title
1 Notes Receivable
Ref
Debit
Credit
6,750
Sales
Should also record
reduction in inventory.
6,750
Exercise E9-10
page 442
8/16 Sold merchandise to Max Weinberg on
account, $4,000.
Date
Account Title
Ref
Debit
Credit
16 Accounts Receivable - MW
4,000
Sales
4,000
12/16Received a $4,000, 6-month, 12% note on
account from Prentice Berge.
Date
Account Title
16 Notes Receivable
Accounts Receivable - PB
Ref
Debit
Credit
4,000
4,000
Exercise E9-10
page 442
8/16 Sold merchandise to Max Weinberg on
account, $4,000.
Date
Account Title
Ref
Debit
Credit
16 Accounts Receivable - MW
4,000
Sales
4,000
12/16 Received a $4,000, 6-month, 9% note on
account from Max Weinberg.
Date
Account Title
16 Notes Receivable
Accounts Receivable - PB
Ref
Debit
Credit
4,000
4,000
Exercise E9-10
page 442
8/16 Sold merchandise to Max Weinberg on
account, $4,000.
Date
Account Title
Ref
Debit
Credit
16 Accounts Receivable – MW
4,000
Sales
4,000
12/16 Received a $4,000, 6-month, 9% note on
account from Max Weinberg.
Date
Account Title
16 Notes Receivable
Accounts Receivable - MW
Ref
Debit
Credit
4,000
4,000
Exercise E9-10
page 442
12/31 Accrued interest revenue on all notes
receivable.
Date
Account Title
Ref
31 Interest Receivable
Interest Revenue
How much?
Debit
Credit
earned
earned
Accrued Interest
11/1
$15,000, one year, 10%
12/11
12/16
$6,750, 90 days, 8%
$4,000, 6 months, 9%
Accrued Interest
11/1
12/11
12/16
12/31
Accrued Interest
11/1
$15,000 x 10% x ??
12/11
12/16
12/31
$15,000 x 10% x ??
Accrued Interest
11/1
2 / 12
12/11
12/16
12/31
2 / 12
Accrued Interest
11/1
2 / 12
12/11
12/16
12/31
$15,000 x 10% x 2/12
Accrued Interest
11/1
12/11
$6,750 x 8% x ??
12/16
12/31
$6,750 x 8% x ??
Accrued Interest
11/1
12/11
31 - 11 = 20
12/16
12/31
31 - 11 = 20
Accrued Interest
11/1
12/11
31 - 11 = 20
12/16
12/31
$6,750 x 8% x 20/360
Accrued Interest
11/1
12/11
12/16
$4,000 x 9% x ??
12/31
$4,000 x 9% x ??
Accrued Interest
11/1
12/11
12/16
½ month
12/31
½ month
Accrued Interest
11/1
12/11
12/16
$4,000 x 9% x ??
12/31
$4,000 x 9% x .5/12
Now make
your
calculations!
Interest Calculations
Principal
Rate
Time
Interest
$15,000
10%
2/12
$ 6,750
8%
20/360
30
$ 4,000
9%
.5/12
15
$250
$345
Interest Calculations
Principal
Rate
Time
Interest
$15,000
10%
2/12
$ 6,750
8%
20/360
30
$ 4,000
9%
.5/12
15
$250
$345
Interest Calculations
Principal
Rate
Time
Interest
$15,000
10%
2/12
$ 6,750
8%
20/360
30
$ 4,000
9%
.5/12
15
$250
$345
Interest Calculations
Principal
Rate
Time
Interest
$15,000
10%
2/12
$ 6,750
8%
20/360
30
$ 4,000
9%
.5/12
15
$250
$295
Exercise E9-8
page 442
12/31Accrued interest revenue on all notes
receivable.
Date
Account Title
Ref
31 Interest Receivable
Interest Revenue
How much?
Debit
Credit
earned
earned
Exercise E9-8
page 442
12/31Accrued interest revenue on all notes
receivable.
Date
Account Title
Ref
31 Interest Receivable
Interest Revenue
$295
Debit
Credit
$295
$295
Receivables