Chapter 8: account receivable Three accounting issues associated with accounts receivable are:
1. Recognizing accounts receivable 2. Valuing accounts receivable 3. Disposing of accounts receivable
Recognizing accounts receivable – a service organization records a receivable when it provides service on account. A merchandise records accounts receivable at the point of sale of merchandise on account.
Valuing account receivable – required if there is any ending balance in accounts receivable at the end of the period
- 3 things to remember
1. Allowance method for uncollectible accounts
2. Recording the write-off of an uncollectible accounts
3. Recovery of an uncollectible account
Bad Debt Expense Dr. xx
Allowance for Doubtful Accounts Cr. xx
Allowance for Doubtful Accounts Dr. xx Accounts Receivable-(company) Cr. xx
Accounts Receivable-(company) Dr. xx
Allowance for Doubtful Accounts Cr. Xx
Cash Dr. xx
Accounts Receivable-(company) Cr. xx
Disposing of account receivable – companies collect accounts receivable in cash and remove the receivables from the books. However, as a credit sales and receivable have grown in significance
Notes Receivable
Determining the maturity date – expressed in term of month & date.
Computing Interest =
Disposing of notes receivable – notes may be held to their maturity date, maker and payee must make an appropriate adjustment. The holder of the note speeds up the conversion to cash by selling the notes receivable
- Honor of notes receivable – maker pays in full at its maturity
- Dishonor of notes receivable – not paid in full at maturity and no longer negotiable. Write off the face value of the note by debiting allowance for doubtful accounts.
Chapter 9: Plant Assets, Natural Resources and Intangible Assets Plant Assets Disposal
RETIREMENT OF PLANT ASSETS
Accumulated Depreciation – Equipment DR
Equipment CR
If a company retires a plant asset before it is fully depreciated, and no cash is received for scrap or residual value, a loss on disposal occurs.
Accumulated Depreciation – Equipment DR Loss and Disposal of Plant Assets DR
Equipment CR
SALE OF PLANT ASSETS GAIN ON SALE
Depreciation Expense DR
Accumulated Depreciation – Equipment CR
Cash DR
Accumulated Depreciation – Equipment DR
Equipment CR
Gain on Disposal of Plant Assets CR LOSS ON SALE
Cash DR
Accumulated Depreciation – Equipment DR Loss on Disposal of Plant Assets DR
Equipment CR
Extractable Natural Resources
Total Cost minus Residual Value ÷ Total Estimated Units = Depletion Cost per Unit Depletion Cost per Unit × Number of Units Extracted and Sold = Annual Depletion Expense
Depletion Expense DR
Accumulated Depletion CR
Intangible Assets
Amortization Expense DR
Patents CR
RESEARCH AND DEVELOPMENT COSTS
Research Expense DR
Development Expense DR
Development Costs DR
Cash CR
Exchange of Plant Assets LOSS TREATMENT
Equipment (new) DR
Accumulated Depreciation – Equipment DR Loss on Disposal of Plant Assets DR
Equipment (old) CR
Cash CR
GAIN TREATMENT
Equipment (new) DR
Accumulated Depreciation – Equipment DR
Equipment (old) CR
Gain on Disposal of Plant Assets CR
Cash CR
Chapter 10: Liabilities Bond Issued
a.) AT FACE VALUE (at 100)
b.) AT A DISCOUNT (at<100 ; ex. 99,98,….etc.) Discount = 1% of face value (if at 99) Issued price = 99% of face value
c.) AT A PREMIUM (at>100 ; ex. 101,102,….etc.) Discount = 2% of face value (if at 102) Issued price = 102% of face value
JOURNAL ENTRY TO PREPARE AT ISSUED DATE
Cash DR
Bonds Payable CR
At Interest Payment Date (6 months after issued Date) a.) FOR MONDS ISSUED AT FACE VALUE
Bond Interest Expense DR
Cash (…% x F.V. x 6/12) CR
b.) FOR BONDS ISSUED AT A DISCOUNT Bond Interest Expense (A+C) DR
Bonds Payable (C) CR Cash (6 months interest) (A) CR c.) FOR BONDS ISSUED AT A PREMIUM
Bond Interest Expense (A-C) DR
Bonds Payable DR
Cash (6 months) (A) CR At the End of Accounting Period (usually Dec.31) a.) FOR BONDS ISSUED AT FACE VALUE
Bond Interest Expense DR
Bond Interest Payable CR b.) FOR BONDS ISSUED AT A DISCOUNT
Bond Interest Expense (A+C) DR
Bonds Payable (C) CR Bond Interest Payable (A) CR
c.) FOR BONDS ISSUED AT A PREMIUM
Bond Interest Expense (A-C) DR Bonds Payable (C) DR
Bond Interest Payable (A) CR Redeeming the bonds
At Maturity Date
Bonds Payable Account has balance = Face Value Cash Paid = Face Value
NO GAIN / LOSS on bonds redemption Journal Entry
Bonds Payable (Face Value) DR
Cash (Face Value) CR Before Maturity Date
There may be GAIN / LOSS on bonds redemption Journal Entry
Bonds Payable DR
Loss on bonds redemption DR
Cash CR
LOSS = Cash Paid > Carrying Value (Liability at date of redemption) Carrying Value = Issued Price – Amortized Premium
OR Carrying Value = Issued Price + Amortized Discount OR Journal Entry
Bonds Payable (Carrying Value) DR
Cash (Cash Paid) CR
Gain on Bonds Redemption CR GAIN = Cash Paid < Carrying Value (Liability)
Special journal 1. Sales journal – for merchandise sold on credit
2. Purchase journal – for merchandise purchased on credit 3. Cash receipts journal – all receipts of cash
4. Cash payments journal – all payments of cash
Other transactions are recorded in the general journal that is purchase & return of ordinary assets, purchase return of merchandise purchased on account and sales returns of merchandise sold on account
Example
Jan 3 purchased merchandise on account from wortham co. $10000 4 purchased supplies for cash
4 sold merchandise on account to milam $5250, invoice no.371, 1/10,n/30 5 returned $300 worth of damaged goods from wortham co. On jan 3 6 made cash sales for the week totaling $3150
8 purchased merchandise on account from noyes co. $4500
9 sold merchandise on account to conner $6400, invoice no.372, 1/10,n/30 13 paid in full wortham co. On account less a 2% discount
13 made cash sales for the week totaling $6260
19 purchased equipment on account from murphy co. $5500
The cost of all merchandise sold was 60% of the sales price
Sales journal
Date Account debited Invoice no. Ref A/r (dr) Sales (cr)
Cost of goods sold (dr) Inventory (cr)
Jan 4 Milam co. 371 5250 3150
9 Connor corp 372 6400 3840
$11650 $6990
(112,401) (505,120)
Purchase journal
Date Account credited Terms Ref Inventory (dr) A/p (cr)
Jan 3 Wortham co. 10000
8 Noyes co. 4500
$14500 (120,201)
General journal
Date Account title Ref Debit Credit
Jan 5 A/p 201 300
inventory 120 300
19 Equipment 157 5500
a/p 201 5500
Case receipts journal Date Account
credited
Ref Cash Sale dis.
A/R Sales Other cr.
Cost of good sold Inventory
Jan6 Sales 401 3150 3150 1890
13 Sales 401 6260 6260 3756
Total $9410 $9410 $5646
(101) (414) (112) (401) (x) (505,120)
Cash payments journal
Date Chk no Account debited Ref Other dr. A/p Inventory Cash
Jan4 Supplies 126 80 80
13 Wortham co. 10000 200 9800
Total $80 $10000 $200 $9880
(x) (201) (120) (101)
Chapter 11: Corporations Accounting for Ordinary Share Issues
ISSUING PAR VALUE ORDINARY SHARES FOR CASH
Cash DR
Share Capital – Ordinary CR
Cash DR
Share Capital – Ordinary CR
Share Premium – Ordinary CR
ISSUING NO-PAR ORDINARY SHARES FOR CASH
For example, assume that instead of 1 par value shares, Hydro-Slide, Inc. has 5 stated value no-par shares and company issues 5,000 shares at 8 per share for cash.
Cash 40,000
Share Capital – Ordinary 25,000
Share Premium – Ordinary 15,000
What happens when no-par shares do not have a stated value? It records the issuance of the 5,000 shares at 8 per share for cash as follows.
Cash 40,000
Share Capital – Ordinary 40,000
ISSUING ORDINARY SHARES FOR SERVICES OR NON-CASH ASSETS
Organization Expense DR
Share Capital – Ordinary CR
Share Premium – Ordinary CR
Land DR
Share Capital – Original CR
Share Premium – Ordinary CR
Accounting for Treasury Shares
PURCHASE OF TREASURY SHARES
Treasury DR
Cash CR
DISPOSAL OF TREASURY SHARES
SALE OF TREASURY SHARES ABOVE COST
Cash DR
Treasury Shares CR
Share Premium – Treasury CR SALE OF TREASURY SHARES BELOW COST
Cash DR
Share Premium – Treasury DR
Treasury Shares CR
Accounting for Preference Share
Cash DR
Share Capital – Preference CR
Share Premium – Preference CR
Chapter 12: Investments 1. Investment in bond (Debt Investments)
1. Purchase of bonds
Debt Investments Dr xx
Cash Cr xx
2. Receive interest on interest due
Cash Dr xx
Interest Revenue(%FaceV.x6/12) Cr xx 3. Record accrued interest at end of accounting period
Interest Receivable Dr xx
Interest Revenue Cr xx
4. On receiving cash on accrued interest on the ext interest
Cash Dr xx
Interest Receivable (last year’s) Cr xx Interest Revenue (present year) Cr xx
5. Sale of bond
Cash (selling price) Dr xx
Debt Investment (cost) Cr xx Gain on sale of debt investment Cr xx (#5 If loss, Debit ‘lost on sale of debt investment)
2. Investment in stock – journal entries
Transactions Cost Method
Investors ownership interest 0-20%
Equity Method
Investors ownership interest 20-50%
1.Purchase Stock Share Investments Share Investments
Cash (purchase price) Cash (purchase price) 2.Issuing Co.
Report net income
No entry Share Investments Revenue from share investment
3.Receive Cash Cash Cash
Dividend Revenue Share Investments 4.Sale of stock Cash (selling price) Cash (selling price)
Share Investments (cost) Share Investments (cost) Gain on sale of share
investments
Gain on sale of share investments
(#4 If loss, Debit ‘lost on sale of debt investment) Type of securities
1.Trading securities
- Cost less than Fair Value
- Cost more than Fair Value
Fair Value Adjustment-Trading Dr. xx Unrealized gain-Income Cr. xx
Unrealized loss-Income Dr. xx Fair Value Adjustment-Trading Cr. xx
In St. of financial position fair value of trading securities is shown under current assets. Unrealized gain/loss is shown in the income statement under other income/other expense
3. Non-trading securities (Share only) - Cost less than Fair Value
- Cost more than Fair Value
Unrealized loss/gain-Equity Dr. xx Fair Value Adjustment-Non-Trading Cr. xx Fair Value Adjustment-Non-Trading Dr. xx
Unrealized gain/loss-Equity Cr. xx
