Receivables and Payables

This chapter discusses accounts receivable, uncollectible accounts, bad debts, and accounts payable.

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. Various forms of liabilities that a company might incur are described. Since most businesses operate mainly on credit sales, it is important to understand the implications of your credit and collections policies. Liabilities can be strategically important for a business, and are a necessary part of doing business. However, debt increases the risk of a company, and managing liabilites is crucial for business survival.

Learning objectives

After studying this chapter, you should be able to:

•  Account for uncollectible accounts receivable under the allowance method.

•  Record credit card sales and collections.

•  Define liabilities, current liabilities, and long-term liabilities.

•  Define and account for clearly determinable, estimated, and contingent liabilities.

•  Account for notes receivable and payable, including calculation of interest.

•  Account for borrowing money using an interest-bearing note versus a non interest-bearing note.

•  Analyze and use the financial results - accounts receivable turnover and the number of days' sales in accounts receivable.

Source: Textbook Equity,
Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License.