Unit 7: Receivables and Payables Identified
During the course of regular business, it is common to provide credit to some customers. Once a business provides an extension of credit, it now owns a promise that it will be paid back. As part of this agreement, the business entity will charge interest at varying rates, which are typically imposed based on the customer's creditworthiness. It is also common that the business will not be able to collect some of these credit extensions. In accounting, we identify these promises someone makes to a business entity as accounts receivable. This unit discusses accounts receivables and highlights specific information on what to do when a business extends credit to its customers.
During the regular course of business, there will also be times where the business entity needs to make specific purchases to support the regular business activity when they do not have enough cash on hand from a current asset perspective. In these situations, the business should have lines of credit, where the business has promised to pay someone else as a result of being extended a particular line of credit or goods on credit. These transactions are considered payables and create liabilities for the organization. Liability can also be considered a promise to pay.
Completing this unit should take you approximately 3 hours.
Upon successful completion of this unit, you will be able to:
- define and apply the accounting elements associated with receivables and payables.
7.1: Receivables and Payables
Read and take notes on sections 9.1-9.9 on pages 11-54.
This chapter discusses accounts receivable, uncollectible accounts, bad debts, and accounts payable.
- Section 9.3 covers what should happen when a receivable is uncollectible. Pay attention to aging schedules, how to write off receivables, and how credit card transactions should be identified and recorded from the business entity's perspective.
- Section 9.4 discusses liabilities and explains the difference between clearly-determined liabilities, estimated liabilities, and contingent liabilities.
- Section 9.5 discusses promissory notes and how to account for them. Pay attention to interest receivable, interest revenue, interest expense, and interest payable.
- Section 9.6 describes how businesses handle short-term cash flow problems when they need short-term financial assistance to support strategic business activity.
- Section 9.9 offers a self-test. The solution to the self-test is on pages 66 and 67.
These videos cover accounts receivable. Pay attention to accounts and how to show them on the balance sheet. Uncollectible accounts can be a real problem for an organization.
7.2: Understanding Bad Debt and its Relationship to Receivables
This article covers foreign currency, bad debts on receivables, gain or loss, net realized receivables, and how foreign currency is treated by U.S. organizations. Since business is global, it is important to the effect this has on the financials of any MNC.
Unit 7 Assessment
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.