Understanding Accounts and Notes Receivable: Recognition, Valuation, and Disposal
Understanding Receivables: A Comprehensive Guide
This document outlines the key aspects of receivables, including accounts receivable (A/R) and notes receivable (N/R), focusing on recognition, valuation, and disposal.
Three Types of Receivables
- Accounts Receivable: Customer owes the company on account.
- Notes Receivable: Written promise with collection of interest.
- Other Receivables: Nontrade receivables, including interest loans, advances, and income taxes.
Key Issues with Accounts Receivable
- Recognizing
- Valuing
- Disposing
Recognizing
Read MoreCore Accounting Entries: Debits and Credits Illustrated
Recording Financial Transactions
Sales and Customer Receipts
- Sales Transaction:
Debit: Banks, Customers
Credit: Sales, VAT Payable - Document Signing (Notes Receivable):
Debit: Notes Receivable
(Implied Credit: Accounts Receivable/Sales) - Remaining Client Balances (Open Account):
Debit: Accounts Receivable - Total Sales Recognition:
Credit: Sales - Payment Received (Notes Receivable):
Debit: Bank/Cash
Credit: Notes Receivable - Payment Received (Client Balance):
Debit: Bank/Cash
Credit: Accounts Receivable - Sales Return:
Debit:
Essential Accounting Formulas for Financial Statements
Balance Sheet Equations
Assets = Liabilities + Equity
Current Ratio = Current Assets / Current Liabilities
Net Accounts Receivable = Gross Accounts Receivable – Allowance for Uncollectibles
Allowance for Uncollectibles = Gross Receivables x Estimated Percentage
Net Realizable Value (NRV) = Accounts Receivable – Ending Allowance for Doubtful Accounts
Equity and Stock Transactions
Issuing stock increases Equity.
Common Stock Balance = Number of Shares Issued x Par Value per Share
Additional Paid-in Capital
Read MoreCash Flow Statement: Activities, Methods & Preparation
Understanding Cash Flow Activities
It is important to first identify the resources generated or used by the business during the accounting period, classified into three main areas:
- Cash generated by or used for operating activities.
- Cash generated by or used for investment activities.
- Cash generated by or used in financing activities.
Operating Activities Cash Flow
Cash flow from operating activities represents the cash generated from the main, regular income-producing activities of the business. These
Read MoreAccounting Records for Sales
Item 7. Accounting Record of Operations, Marketing, and Sales
7.1. Accounting for Sales PGC
System of Accounting Records and Accounts to Identify PGC
- (700) Sale of goods
- (701) Sales of finished products (35)
- (702) Sales of semifinished products (34)
- (703) Sale of products and waste (36)
- (704) Sales of container and packaging (326, 327)
- (705) Services
Create Accounts and Subaccounts for the Registration of Sales of Goods
The PGC accepts accounts and subaccounts as may be necessary.
Example: blue pen 70001,
Read MoreUnderstanding Accounting Vouchers, Books, and Financial Ratios
Accounting Vouchers
Proof of Income:
These are used in transactions related to entering the company’s background.
Proof of Outflows:
These are used in transactions related to the outflows of the company.
Other Transactions:
These are used in other transactions made by the company.
The information contained in the proof is the origin for registration in the books, and they should also make accounting reports.
Books of Accounts: Purchases and Sales Assistants
These books are records of journal and subsidiary
Read More