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PRDV201: Accounting Principles I

Unit 4: Accounts Receivable Reporting   Suppose you purchase a new 3-D television from a local retailer and make the purchase on a store-issued credit card.  How does the retailer record this credit purchase?  As you will learn in this unit, credit purchases are commonly recorded as accounts receivables.  Accounts receivables include the money that a company expects to receive in the future for items purchased today.  Should the money be recorded now or when it is actually received?  You will explore this question as you learn the ins-and-outs of accounts receivables.

Companies’ accounts receivables are affected when customers cannot pay their outstanding balances.  These write-offs have to be carefully considered when deciding the amount of credit to be issued to each customer.  With the 2008 recession, many companies had large accounts receivables write-offs, as customers struggled to pay for credit-purchased merchandise.  Meanwhile, other companies were able to use their accounts receivables in negotiating for loans to sustain their businesses until sales rebounded.

While completing this unit, focus on the components that contribute to accounts receivables, how write-offs are determined and recorded, and how companies use their accounts receivables to access loans or generate cash.

Unit 4 Time Advisory
This unit should take approximately 2.75 hours to complete.

☐    Subunit 4.1: 0.5 hours

☐    Subunit 4.2: 0.25 hours

☐    Subunit 4.3: 1 hour

☐    Subunit 4.4: 0.5 hours

☐    Subunit 4.5: 0.5 hours

Unit4 Learning Outcomes
Upon successful completion of this unit, the student will be able to: - Identify items that can be categorized as accounts receivables. - Explain how write-offs affect a company’s accounts receivables balance. - Explain how bad debt, expenses, and allowances are reported for uncollectible accounts as well as use the fundamental accounting equation to make the determination for uncollectible accounts. - Explain and analyze when and how companies should handle write-offs and bad debt. - Calculate accounts receivables ratios to determine a company’s liquidity.

4.1 What Are Accounts Receivables?   - Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 9: Receivables and Payables” Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 9: Receivables and Payables” (PDF)

 Instructions: If you have not already saved this document to your
desktop, please click on the link above to download the PDF.  Read
the section titled “Accounts Receivable” on page 397–402.  By the
conclusion of this reading, you should be able to define Accounts
Receivable and be able to identify what components constitute
Accounts Receivables.  Pay close attention to the example that is
explained throughout this section and how Accounts Receivables are
recorded on the Balance Sheet.  

 Reading this chapter and taking notes should take approximately 20
minutes.  

 Terms of Use: The book above is released under a [Creative Commons
Attribution-Non-Commercial-Share-Alike License
3.0](http://creativecommons.org/licenses/by-nc-sa/3.0/).  It is
attributed to James Don Edwards and Roger H. Hermanson, and the
original version can be found
[here](http://dl.dropbox.com/u/31779972/Accounting%20Principles%20Vol.%201.pdf).

4.2 Revenue Recognition   - Lecture: Dr. Larry Walther’s Principles of Accounting: “The Costs and Benefits of Selling on Credit” Link: Dr. Larry Walther’s Principles of Accounting: “The Costs and Benefits of Selling on Credit” (YouTube)

 Instructions: Please click on the link above and watch the video
lecture.  By the end of this lecture, you should be able to list the
pros and cons of allowing customers to use credit to buy items as
well as the likelihood that a merchandising company would have
Accounts Receivables.  As mentioned in Units 1 and 2, revenue is
recognized by different methods.  As you watch this lecture, think
about how recognizing revenue may affect how businesses record their
Account Receivables.  

 Watching this lecture and taking notes should take approximately 10
minutes.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

4.3 Recording Bad Debt Expenses   - Lecture: YouTube: ORU Accounting’s “Chapter 9 Lecture: Receivables” Link: YouTube: ORU Accounting’s “Chapter 9 Lecture: Receivables” (YouTube)

 Instructions: Please click on the link above and watch the entire
lecture.  As you watch the lecture, pay close attention to how bad
debt expenses arise and how businesses handle calculating and
recording bad debt.  By the end of this lecture, you should be able
to list several originations of bad debt and be able to record bad
debt expenses as a journal entry.  

 Watching this lecture and taking notes should take approximately 1
hour.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

4.4 Allowance for Uncollectible Accounts   - Lecture: Dr. Larry Walther’s Principles of Accounting: “Accounting Considerations for Uncollectible Receivables” Link: Dr. Larry Walther’s Principles of Accounting: “Accounting Considerations for Uncollectible Receivables” (YouTube)

 Instructions: Please click on the link above and watch the entire
lecture.  As you watch the lecture, pay close attention to why
uncollectible receivables arise and what a merchandising company can
do to account for this type of receivables.  By the end of this
lecture, you should be able to list several accounting
considerations that have to be taken into account when it is deemed
that a receivable is not going to be collected.  

 Watching this lecture and taking notes should take approximately 10
minutes.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.
  • Lecture: YouTube: Susan Crosson’s “Cash and Receivables 4 – Uncollectible Accounts” Link: YouTube: Susan Crosson’s “Cash and Receivables 4 – Uncollectible Accounts” (YouTube)

    Instructions: Please click on the link above and watch the lecture, which outlines how businesses record and handle uncollectible accounts.  By the completion of this lecture, you should be able to record a bad debt expense using journal entries, as described in the video.

    Watching this lecture and taking notes should take approximately 10 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Lecture: Dr. Larry Walther’s Principles of Accounting: “Alternative Approaches to Account for Uncollectibles” Link: Dr. Larry Walther’s Principles of Accounting: “Alternative Approaches to Account for Uncollectibles” (YouTube)

    Instructions: Please click on the link above and watch the lecture.  As you watch the lecture, pay close attention to how the alternative approaches to handling uncollectible receivable accounts are generated and used.  By the end of this lecture, you should be able to identify how uncollectible accounts affect the Balance Sheet and the Income Statement.

    Watching this lecture and taking notes should take approximately 15 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

4.5 Handling Write-Offs   - Reading: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 9: Receivables and Payables” Link: Global Text Project: James Don Edwards and Roger H. Hermanson’s Accounting Principles: A Business Perspective, First Global Text Edition, Volume 1: Financial Accounting: “Chapter 9: Receivables and Payables” (PDF)

 Instructions: If you have not already saved this document to your
desktop, please click on the link above to download the PDF.  Read
the section titled “Write-offs of Receivables” on page 402 and 403. 
By the conclusion of this reading, you should be able to prepare a
journal entry to write-off receivables that are deemed
uncollectible.  This information is important as it will help you
complete the next assignment for this section.  

 Reading this chapter and taking notes should take approximately 5
minutes.  

 Terms of Use: The book above is released under a [Creative Commons
Attribution-Non-Commercial-Share-Alike License
3.0](http://creativecommons.org/licenses/by-nc-sa/3.0/).  It is
attributed to James Don Edwards and Roger H. Hermanson, and the
original version can be found
[here](http://dl.dropbox.com/u/31779972/Accounting%20Principles%20Vol.%201.pdf).
  • Activity: Dr. Larry Walther’s Principles of Accounting: “Chapter 7: Accounts Receivable: Write-off Worksheet” Link: Dr. Larry Walther’s Principles of Accounting“Chapter 7: Accounts Receivable: Write-off Worksheet” (PDF)

    Instructions: Please click on the link above and carefully read the directions before completing the worksheet.  If you have difficulty completing the worksheet, refer back to the reading assignments for subunit 4.4.

    Reviewing your previous readings and completing this worksheet should take approximately 15 minutes.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.