Question

1. Please describe the difference between an accounts receivable and a notes receivable.

2. There are times when businesses cannot collect the money that is owed to them by their customers. When this happens, businesses incur an expense. There are two methods for recording uncollectible receivables. They are the allowance method and the direct write off method. Please explain the difference between these two methods.

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Answer 1

Solution:

1)

• The difference between the accounts receivable and notes receivable.
• The account receivable is the funds owned by the customers where as note receivable is a written promise by supplier agreeing to pay a sum of money in future.
• The company and will be recorded as assets in the statement of financial position.Accounts receivable and not receivable play an important role in deciding the liquidity position in the company.
• The notes receivable if carry the fixed interest rate .
• The accounts receivable if carry interest on the some conditions that n/10. If concept indicates that if a customer pay after 30 days he is not eligible for discount .If he pay with in 10 days some discount will be allowed.
• Generally in the case of the notes receivable their exists a fixed maturity date, and it can be issued either for a long term or short term. It means for more than 60 days.
• The accounts receivable it is for 30 days are 60 days less period
• The note receivable it is fully secured and it is not so, in case accounts receivable hence doubtful reserve are created.
• These both are come under current assets
• Accounts receivable and notes receivable these are main intention is in order to promote rule.

2)

• Under the direct methodology a corporation doesn’t anticipate debt expense.
• Rather it waits till associate degree account is truly written off as invalid before recording debt expense.
• This suggest it asset are going to be turning to money.
• If these some doubt regarding the collectibility of number of the assets ,the assets area unit doubt less immoderate and also the company Profit is doubtless overstated.
• The debt expense can occur in a lot of later amount than the revenue from the sale.
• The accounting profession prefers the allowance methodology over the direct write off methodology as a result of the assets are going to be given on the record with a discount known as the allowance for uncertain accounts.Therefore the debt expense is reported nearer to the time of the credit sale.
• It ought to be noted that the inner revenue service needs the direct write off methodology.
• If ascertain the write off for debt expense only associate degree account due is truly written –off as against allowing a deduction for associated degree anticipated potential loss.