Unit 5 Notes
Apply accounting procedures to perform selected
specialized accounting activities.
Objective 5.01 Apply procedures to prepare journal entries for notes payable and notes receivable
transactions.
I.
Calculating Interest, Maturity Date, and Maturity Value on a Note
A. Interest = Principal X Interest Rate X Time in Years
B. Maturity Date
Example:
90-day Note, signed May 18, Maturity Date is August 16
1. Calculate the number of days remaining in May (13) by subtracting the date of the note
(18) from the number of days in May (31): 31 – 18 = 13.
2. Calculate the number of days remaining in the term of the note (77) by subtracting the
number of days in the previous month (13) from the term of the note (90). Because 77 is
greater than the number of days in June (30), add all of the days in June (30).
3. Calculate the number of days remaining in the term of the note (47) by subtracting the
number of days in the previous months, 43 (13+30), from the term of the note, 90.
Because 43 is greater than the number of days in July (31), add all of the days in July (31).
4. Calculate the number of days remaining in the term of the note (16) by subtracting the
number of days in the previous months, 74 (13+30+31), from the term of the note, 90: 90
– 74 = 16. Because 16 is less than the number of days in August (31), add only 16 days in
August. The Maturity Date is August 16.
C. Maturity Value = Principal + Interest
II.
Procedures for Journalizing Notes Payable Transactions
B. Issuance of a note payable
5. Write the date in the Date column of the Cash Receipts Journal.
6. Write the receipt number in the Doc. No. column.
7. Debit Cash for the principal amount of the note.
8. Credit Notes Payable for the principal amount of the note.
C. Payment of principal and interest on a note payable
9. Write the date in the Date column of the Cash Payments Journal.
10. Write the check number in the Doc. No. column.
11. Debit Notes Payable for the principal amount of the note.
12. Debit Interest Expense for the amount of the interest paid.
13. Credit Cash for the total amount paid (maturity value of the note).
D. A note payable issued for an extension of time
14. Write the date in the Date column of the General Journal.
15. Debit Accounts Payable (referencing the appropriate vendor account) for the principal
amount of the note.
16. Credit Notes Payable for the principal amount of the note.
E. Payment on a note payable for an extension of time
17. Write the date in the Date column of the Cash Payments Journal.
18. Write the check number in the Doc. No. column.
19. Debit Notes Payable for the principal amount of the note.
20. Debit Interest Expense for the interest paid.
21. Credit Cash for the total amount paid.
Unit 5 Notes
Apply accounting procedures to perform selected
specialized accounting activities.
III.
Procedures for Journalizing Notes Receivable Transactions
F. Acceptance of a note receivable from a customer
22. Write the date in the Date column of the General Journal.
23. Write the note number in the Doc. No. column.
24. Debit Notes Receivable for the principal amount of the note.
25. Credit Accounts Receivable (referencing the appropriate customer) for the principal
amount of the note.
G. Collection of principal and interest on a note receivable
26. Write the date in the Date column of the Cash Receipts Journal.
27. Write the receipt number in the Doc. No. column.
28. Debit Cash for the total amount received (maturity value of the note receivable).
29. Credit Interest Income for the amount of the interest received.
30. Credit Notes Receivable for the principal amount of the note.
H. A dishonored note receivable
31. Write the date in the Date column of the General Journal.
32. Debit Accounts Receivable (referencing the appropriate customer account) for the total
amount of the note, including interest due.
33. Credit Notes Receivable for the principal amount of the note.
34. Credit Interest Income for the interest due on the note.
KEY TERMS
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 Promissory note
 Creditor
 Note payable
 Principal (face value
 Term (time
 Issue date
 Payee
 Maturity date
 Maker
 Maturity value
 Current liabilities
Long-term liabilities
Interest-bearing note
Non-interest-bearing note
Bank discount
Proceeds
Interest Expense
Note receivable
Interest income
Dishonored note
Unit 5 Notes
Apply accounting procedures to perform selected
specialized accounting activities.
Objective 5.02 : SWBAT Apply procedures to prepare journal entries for uncollectible accounts
transactions.
II.
Procedure for Journalizing Uncollectible Accounts Receivable Using the Direct Write-Off Method
A. Debit Uncollectible Accounts Expense.
B. Credit Accounts Receivable/Customer’s account.
III.
Procedure for Estimating Uncollectible Accounts Expense and Journalizing the Adjusting Entry
Using the Allowance Method
A. Total sales X Percentage of sales expected to be uncollectible = Uncollectible Accounts
Expense
B. Adjustment for uncollectible accounts expense
1. Debit Uncollectible Accounts Expense.
2. Credit Allowance for Uncollectible Accounts.
IV.
Procedure for Journalizing the Collection of Uncollectible Accounts Receivable
A. Re-open an account receivable previously written off
1. Debit Accounts Receivable/Customer’s account.
2. Credit Allowance for Uncollectible Accounts.
B. Record cash received for an account previously written off
1. Debit Cash.
2. Credit Accounts Receivable/Customer’s account.
KEY TERMS
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Uncollectible account
Writing off an account
Allowance for Uncollectible Accounts
Uncollectible Accounts Expense
Direct write-off method
Allowance method
Book value of accounts receivable
Percentage of net sales
Aging of accounts
Unit 5 Notes
Apply accounting procedures to perform selected
specialized accounting activities.
Objective 5.03 : Apply procedures to prepare journal entries for straight-line
depreciation of plant assets transactions.
V.
Procedure for Calculating Straight-Line Depreciation
a. Subtract the asset’s estimated salvage (disposal) value from the asset’s original cost. The
difference is the estimated total depreciation expense for the asset’s entire useful life.
Est. Total Deprec. Expense = Original Cost – Est. Salvage Value
b.
VI.
Divide the estimated total depreciation expense by the years of estimated useful life. The
result is the estimated annual depreciation expense.
Est. Annual Deprec. Expense = Est. Total Deprec. Exp. ÷ Years of Useful Life
Procedure for Calculating Depreciation Expense for Part of a Year
D. Divide the annual depreciation expense by 12, the number of months in a year. The result is
the monthly depreciation expense.
Monthly Depreciation Expense = Annual Depreciation Expense ÷ 12
E.
Multiply the monthly depreciation expense by the number of months the plant asset is used in
a year. The result is the partial year’s depreciation expense.
Partial Deprec. Exp. = Monthly Deprec. Exp. X Months Asset Used
VII. Procedure for Calculating Accumulated Depreciation and Book Value
A. The accumulated depreciation of a plant asset is calculated by adding the depreciation expense
for the current year to the prior year’s accumulated depreciation.
Accum. Deprec. = Prior Year Accum. Deprec. + Current Year Deprec. Exp.
B.
The book value is calculated by subtracting the accumulated depreciation from the original
cost of the plant asset.
Book Value = Original Cost of Plant Asset – Accumulated Depreciation
C.
The book value can also be calculated by subtracting the year’s depreciation from that year’s
beginning book value.
Book Value = Year's Beginning Book Value – Year's Depreciation
VIII. Procedure for Journalizing and Posting Annual Depreciation Expense
a. Recording on the worksheet
i.
Debit Depreciation Expense for the total annual depreciation expense amount.
ii.
Credit Accumulated Depreciation for the total annual depreciation expense amount.
b. Journalizing in the General Journal
i.
Write the date in the Date column of the General Journal.
ii.
Debit Depreciation Expense for the total annual depreciation expense amount.
iii.
Credit Accumulated Depreciation for the total annual depreciation expense amount.
c. Posting to the General Ledger
i.
Post the debit to Depreciation Expense.
ii.
Post the credit to Accumulated Depreciation.
Unit 5 Notes
Apply accounting procedures to perform selected
specialized accounting activities.
KEY TERMS
 Plant asset
 Depreciation expense
 Straight-line method of depreciation
 Estimated salvage value (estimated disposal value)
 Estimated useful life
 Plant asset record
 Declining balance method of depreciation