Unit 7: Receivables and Payables Identified
During the course of regular business, it is not uncommon 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 credit worthiness of the customer. It is also not uncommon 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 an accounts receivable. This section of the course will provide analysis and insight on accounts receivables and highlight specific information on what to do when a business extends credit to its customers.
Also, during the regular course of business, there may come times where the business entity needs to make specific purchases to support the regular business activity, but they do not have enough cash on hand to meet these demands from a current asset perspective. In these types of situations, it is viable for a business entity to possess lines of credit. In this type of situation, the business entity has created a promise to pay someone else as a result of being extended a particular line of credit or goods on credit. These types of transactions would be considered payables and would in fact create liabilities for the organization. Please remember that earlier in the course, you were introduced to the fact that a 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
This reading presents accounts receivable, uncollectible accounts, bad debts and accounts payable. The theory of each is presented and the treatment of these accounts are discussed as well. Some of this is material that you have seen in the videos. This is a reading presentation of very similar material. Watch the video and follow in the text to help embed the principles.
You should read and take notes on Sections 9.1 through 9.9 of Chapter 9 on pages 11 through 54.
Section 9.1 provides chapter-specific learning objectives.
Section 9.2 provides another look at a potential employment opportunity for someone interested in the business of accounting.
Section 9.3 builds from what you have learned through your completion of the material in Chapter 3. The focus in this section of the course is on what should be happening when a receivable is uncollectible. You will be introduced to methods and should pay specific attention to the concept of an aging schedule and how to write off receivables. There is also insight provided on how credit card transactions should be identified and recorded from the business entity's perspective.
Section 9.4 provides explanations associated with liabilities. Discussion in this section of the course will also distinguish among clearly determined liabilities, estimated liabilities, and contingent liabilities.
Section 9.5 provides specific language to understand notes (also identified as promissory notes), and how to account for them within the accounting system. As you go through this section of the course, make sure you pay attention to the discussion on interest receivable, interest revenue, interest expense, and interest payable.
Section 9.6 describes how businesses handle short-term cash flow problems. There are situations when a business may need short-term financial assistance to support strategic business activity.
Section 9.7 provides a review of the learning objectives, as well as demonstration problems and the solutions in the textbook as 9.7.1 through 9.7.3.
Section 9.8 revisits the terms from this chapter that you have connected with during your studies.
Section 9.9 offers a self-test of true/false and multiple-choice questions. There are other self-test questions, but the answers are only provided for the true/false and multiple-choice questions within the chapter. The solution to self-test is located on pages 66 and 67 in Chapter 9.
These videos present material on accounts receivable. Pay attention to the material on uncollectible accounts and how to show this on the balance sheet. Uncollectible accounts can present a real problem to the organization. The video points out different methods employed to manage this.
7.2: Understanding Bad Debt and its Relationship to Receivables
This reading covers foreign currency and bad debts on receivables. It discusses the concept of gain or loss and net realized receivables The new material covered addresses how foreign currency is treated by U.S. organizations. Since we are a very global business world, it is important that you see 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.