 In this presentation we're going to continue on with our notes receivable and accounts receivable problem focusing in on the notes receivable, converting them from notes receivable to accounts receivable, allowing us to focus in on those differences between notes receivable and accounts receivable. Remember that the data is on the left side. We're going to enter that information calculating the interest for the notes receivable in our worksheet here. We're going to post any journal entries to the general journal right here. We've been working with this and the cells that are hidden here are the cells that we have done so far. So I don't do this if your worksheet is hidden, but I'm going to unhide right click or highlight these or select these cells right click and unhide just to show here's what we've done so far. Now I'm going to undo that hide them back up. I'm just going to hide those so that we can then see our current data that we're going to be posting to our worksheet. Here's the beginning balance. Here's the entries including what we've done thus far and then here's our ending balance. We then have our subsidiary ledger breaking out the accounts receivable account by customer, summing those up then adding up to 35-122 that matching what's on the trial balance. Scrolling back over see what we are on this time and let's see where are we we're on 87. So we have 90 day 10% note giving MU company and extension on past due accounts receivable. So MU company in other words if we scroll back over to the subsidiary ledger owes us 8,850. They're not paying us. We're going to move it then from the accounts receivable to a notes receivable moving it from a non-interest bearing receivable to an interest bearing receivable. So we're basically saying we're going to give you an extension but you have to pay us interest on it. So we're going to scroll back up that happened I believe on 87. Let's check it just to make sure. Scrolling back over scrolling down 87. All right scrolling back over scrolling up and we're going to say that accounts receivable is going to go down. So here's the accounts receivable has a debit balance. We need to do the opposite thing to it a credit. So I'm going to copy S6 right click and copy put that on the bottom in 06 right click and paste 1 2 3. The amount is going to be what is in the subsidiary ledger for MU which is 8,850. So we'll put a credit of 8,850. By the way you might be trying to say well why don't we use a formula here and if you do just be careful which cell you pick up. For example if I was to say I want to put negative to make it a credit of this cell then I'm going to have a problem when I post something to AU because it's going to change this cell. If however I picked up this cell then it could be something that would work. So just you want to use formulas as much as possible but be careful if the formula that you're using is going to change if you picked up one of these numbers here. So that's why on this one I hard coded there even though the general rule use formulas as much as possible. Then I'm going to put a negative of this number or just an 8,850 using a formula flipping the cell to 8,850. That's going to go into the notes receivable for MU. So that's going to be here just moving it from one receivable to the other from an account receivable to a notes receivable from a non-interest bearing receivable to an interest bearing receivable. Right clicking on S10 and copy. I'm going to put that in 05 right click and paste values only 1,2,3. Then we're going to indent this second cell in 06 going to the home tab. Alignment increase the indentation. Now let's post this out. Notes receivable here for MU is going to be here on the trial balance. We're going to be in the middle column in U10. We'll say equals and point to that 8,850 bringing the balance from 0 up by 8,850 to 8,850. Account receivable is going to be here. It's going to be there on the trial balance. There is something in it in U6. Therefore we will double click on it. Go to the end of it plus point to that 8,850 and enter. So there is that. Now we took it out of account receivable and we need to also do that on the subsidiary ledger, the subsidiary ledger breaking out this information by customer. So we're going to be here in AC14 posting this same amount to the subsidiary ledger not the general ledger subsidiary ledger breaking it out by customer. This equals in AC14 that 8,850 bringing the balance down to 0. If we were to sum up all the customer balance in the subsidiary ledger like this it would add up to 26,272 which should and does match the trial balance. Next transaction we're going to scroll back over. Actually we're going to actually do the interest calculation now. Now remember the interest calculation is not going to be something that we take into effect until the note becomes due but we're going to calculate it now and this is often again one of the confusing pieces of these types of problem because you're going to say hmm there's interest and there's number of days that they gave us and we're not going to do anything with it and the answer is no we're not going to do anything with it until the interest comes due because we haven't we haven't earned it until time passes. So we're going to say that it was 8,850 this time we have 10% for whatever reason we're charging MU 10% hope he doesn't contact these other people we gave a 7% anyway the interest rate went up for whatever so we're going to go over to the home tab font and underline and then we're going to multiply this out and remember that's 10% per year and we have to break it out we're going to figure it out 10% for however long we had it for which was 90 days so we will say this equals the 8,850 times the 10% and enter 885 dollars in interest per year we need to break that out to what it would be for 90 days we're going to break that to a daily total first by saying equals 12 months times 30 days or 360 a rounding an estimate exact would be close to 365 then we'll divide that out so we are in E 22 we're going to say this equals the interest for a year 885 divided by the number of days in the year 365 or 360 rounded given as 2 dollars and 46 cents per day of interest earned underlining that home tab font group underline then we're going to say the number of days which we'll have outstanding is 90 so 90 days actually i didn't want to underline this one i'm going to underline this 246 home tab font underline and underline the 90 home tab font and underline then we'll multiply that out we're in E 24 we're going to say equals point to that 246 times 90 dollars giving 221 25 going to make that rounded by just using the cell which already has the format to round it to the nearest dollar equals that 221 25 bringing it down to 221 remember this this is just rounding so if i go to the home tab and the numbers it's really that number but we're going to round it for our purposes here and we'll do a quick calculation just with the calculation on calculator on this first one just to show the calculation of interest a few different ways this time and then when we won't do this again i don't think so we're going to say that if we had interest for a year of 885 because remember every time we say a percentage it usually means a year and then we're going to say that there are 12 months in a year divided by 12 and we're having it outstanding for 90 days 30 60 90 three months so times three and that'll give us this same number so we can also calculate this way or with ratios the ratio being either the number of days 90 compared to the number days in a year rounded 360 would give us 0.25 or we take the number of months three 30 60 90 three months divided by 12 also 0.25 that being a ratio given us the decimal times the interest which is 885 gives us that same 221 so just be aware multiple ways to see that calculation okay so there's our number next one we're going to go to here on 93 60 day 9 percent no giving note giving c company a time extension on past it should be passed to accounts receivable so same thing c company we're going to scroll back over c company is here owes us 2150 didn't pay us therefore we're going to move it from a non-interest bearing a receivable account to an interest bearing receivable account from accounts receivable in other words to notes receivable so it's an accounts receivable it's in here we're going to take it out of there put it into a notes receivable the date then is going to be I believe 93 going to go with that I think that's right so we're going to say accounts receivable has a debit balance we're going to make it go down doing the opposite thing to it a credit so I'm going to copy right click and copy accounts receivable put that on the bottom of date in 09 right click and paste 123 the amount then will be if we take a look at subsidiary ledger 2150 so I'm going to put that on the credit side make it a negative for a credit 2150 we're going to have a debit for the same amount for the debit side I'm going to use that with a formula negative of that number taking that number and flipping the sign it's going to go into the accounts so the notes receivable which we're going to break out into their own account for each note receivable for each customer in our trial balance so this customer was C company right there so in s8 right clicking copy one asset for another asset one asset going down one asset going up one asset being a non-interest bearing account one asset being an interest bearing account one being a receivable typically for a shorter time period the other typically for a longer then I'm going to right click and paste 123 we're going to indent this accounts receivable go into the home tab alignment increase the indenting then record this out here's the notes receivable in the journal entry here it is on the trial balance we're going to be in u uh u8 and say equals point to that 2001 50 bringing the zero balance up by 2001 52 2001 50 accounts receivable is here on the journal entry we're going to post it here on the trial balance in cell u6 double clicking go into the end plus pointing to that 2001 50 bringing the balance down then we'll go to c company over here we're going to bring it down with a credit so we are in ac7 within ac7 equals point to that 2001 50 bringing the balance down to zero and that then means if we add up all of our subsidiary ledger accounts adds up to 24343 that then matching to 24343 on the trial balance scrolling back over we're going to do this calculation for c company same type of calculation we're going to say that uh we had the beginning balance starting at 2001 50 2001 50 they also had a 10 interest rate so it looks like the interest just went up it's not it's not the customer word interest rates went up that's just how it happens over time so then we're going to go to the home tab font and underline and we'll multiply that out so we're going to say this equals the 2001 50 times 10 percent so that's g18 times g19 giving us the 215 per year remember that's per year we're going to break that out per day by dividing by the number of days rounded to equals 12 times 30 12 months times 30 days or 360 we will underline that go into the home tab font underline do the calculation the division problem the total for a year divided by the number of days interest per year divided by days in a year equals the interest per year to 15 divided by days in a year 360 and that gives 60 cents per day then we're going to say the number of days outstanding if we scroll back over 60 60 is not right yeah it looks like 60 days so i'm going to put 60 here and underline that so we're going to go to the uh home tab and uh font and underline and then we'll multiply that out the interest per day times the number of days equals the 60 cents per day times number of days uh 60 days giving us the uh 35 83 and then we'll just round that saying equals the 35 83 giving the the 36 and i actually made an error here notice it says nine percent rather than the 10 percent i picked up from the prior one so it looks like interest went back down and note that because we used formulas i can go up here and just change this 10 to a nine and this 36 will calculate down to 32 so it'll do that all for us meaning if i do the same calculation this is how many per um interest per year 360 days doesn't change if we divide out the amount per year divided by 360 we get 54 cents per day divided by 60 days gives us that 32 25 so then on 11 to received payment of principal and interest from c company so we're going to say we receive the principal and the interest so if we scroll back over and what one of what they was at 11 to so 11 to 11 to we're going to say is cash affected we're going to say it is we received payment cash has a debit balance we're going to make it to go up by doing the same thing to it another debit right clicking on the cash and copying putting that in oh 11 right click and paste 123 now the amount is going to be the original amount 2001 50 plus the interest we earned 32 2001 50 plus 32 2001 50 plus 32 equals 2001 50 plus 32 so that's how much we're going to get and then we're going to have to take the note receivable off the books it's on the books here for that 2001 50 not including the 32 not including the interest we have earned yet we're going to have to record that interest so this is going to be a credit this is a debit balance here therefore we need to make it a credit to make it go down so in s eight we're going to right click and copy we're going to put that in oh 12 right click and paste 123 indent that going to the home tab alignment increase in denting putting that's credit in q 12 for that 2001 50 with a negative 2001 50 the credit will be that interest amount of that 32 I'm going to use the negative sum the plug phone formula to get to that 32 by putting in q 13 a negative sum double click that sum function highlighting those cells with values in them giving us the 32 credits then we're going to put the credit account which is going to be interest receivable so I'm sorry interest revenue interest revenue revenue account we earned revenue so here's the revenue account has a credit balance we're going to make it go up doing the same thing to it another credit so I'm going to copy s 18 the revenue interest revenue and copy put that in oh 13 right click and paste 123 we're going to then indent oh 13 going to the home tab alignment increase in denting then we can post this out cash first so cash up top send you five going to double click on it because something's in it go to the end of it plus point to that 2001 82 and enter notes receivable for c company here is going to go here in u 8 double click go to the end of it plus that 2001 50 and enter so it goes down to zero then the interest revenue it's going to be down here interest revenue has a credit balance we're going to double click on it because something's in it go to the end of it plus point to that 32 bringing revenue up putting us back in balance and bringing that income up as well so increasing the income of course by the interest revenue earned for the note receivable taking the notes receivable off the book and recording the cash note that this is the same journal tree we would have for accounts receivable other than we now have to record the revenue earned for the interest revenue not because we made a sale but for the loan for us renting the money out in essence okay next transaction we're going to say on 11-5 received payment received payment of principal and interest from mu company so that was the 8850 plus this 221 that happened on 11-5 so i'm going to say 11-5 we can say is cash affected we're going to say yep we got paid again for the note receivable cash as a debit balance we're going to make it go up doing the same thing to it another debit right click on that cash and copy we're going to put that up top in 0 15 right click and paste 1 2 3 the amount will be 4 it's going to be this 8,850 plus the 120 or the 221 this equals the 8,850 plus the 221 so there is that and then we're going to have the notes receivable i'm going to scroll back over note receivable for mu here we're going to credit that amount so i'm just going to copy that right click and copy put that right underneath in 0 16 right click and paste 1 2 3 then indent home tab alignment increase the indenting amount then in the credit section q 16 for 8,850 we're going to put a negative 8,850 and there we have it now the difference between those two will be this interest 221 so we could put the credit 221 there i'm going to use our negative sum or plug formula so we'll say negative sum double click that sum function highlight those four cells with two numbers in them the difference between them being that 221 the 8,850 plus the 221 equals the debit of 9,071 that then will be revenue interest revenue so we're going to copy a revenue and put that in 0 17 right click and paste 1 2 3 indent this cell home tab alignment increase indenting let's record this one out we're going to say cash first that's our first trend first account in the journal entry it's going to be up here up top we're going to put that in u 5 something's in it so we'll double click on it go to the end of it and say plus and point it to that 9,071 and enter next we have the notes receivable so here's the notes receivable here's the notes receivable for m u on the trial balance here it is a u 10 double click go to the end of it plus point to that 8,850 enter bringing the balance down to zero and then the interest revenue down here in u 18 we're going to record this interest revenue to u 18 double click go to the end of it plus point to that 221 enter brings the balance going up for interest revenue that we earned and put this back in balance net income going up by the interest revenue last one we have here and we're going to say that write off p company account against allowance for doubtful account so now we're going to say p company we just basically gave up on we don't think that we're going to get paid maybe they went bankrupt or something like that and if we scroll over we're going to say here's p company in the receivable so receivable here here's p company we didn't give p company extension we said we just gave up on p company we don't think they're going to pay us we're not going to make up a loan payment for them because we think it's just unlikely we're going to get paid therefore we're writing them off and we're not doing business with them again so unless you know something happened I don't know we're not going to so we're going to write them off indicate so this this amount is in the receivable instead of transferring it to a note receivable we're just going to write it off to the allowance for doubtful account assume and we're using here of course the allowance method which has this allowance for doubtful accounts so in other words in this account accounts receivable needs to go down and we're going to put these other half into the allowance so accounts receivable has a debit balance we're going to do the opposite thing to it which is a credit and I believe the date here that we need to use is 12 1 12 1 let's make sure getting lazy in the last part here 12 1 yeah that's right that's the 1 so accounts receivable has a debit balance we're going to make it go down doing the opposite thing to it a credit so I'm going to right click and copy s6 I'm going to put that on the bottom of the journal entry in 0 20 right click and paste 1 2 3 I'm going to indent that home tab alignment increase indenting and we're going to put the amount that is owed to us by who is this by P company P company so thanks for reminding me P company so we're going to put that on the credit side Q 20 we're going to put negative 3 8 0 0 then we're going to debit something so we are in P 19 I'm going to do that with a formula by saying negative of that number and enter and the debit will not go to a note receivable this time but writing it off to the allowance we're not putting it to bad debt expense note that would be what we do under a direct write-off method we're using the allowance method and allowance already having been set up and we're just going to write it off there so we're going to right click and copy scrolling back down and we'll talk a lot more about allowance method in the allowance method portion of the accounts receivable as well so 0 20 right click and paste 1 2 3 so now we'll just post this one out allowance first so here's the allowance here it is on the trial balance we are in U 7 we're going to say equals and go down and point to that 3800 and enter so that brings the balance down in the allowance account it actually flips it and that's in fact that's fine we'll talk about that later so we're going to go to the U 6 double click something's in it in accounts receivable go to the end of it and plus scroll back down and go to that 3800 and enter bringing the accounts receivable down putting us back in balance no effect on net income notice it's similar to us then making a note receivable in that there's no effect on net income we're recording it in the case of notes receivable to another asset in this case to a contra asset so we're typically have a credit balance in the allowance and we are just basically no effect on the net assets really because it was here and then we had this credit balance and we just basically took it out of the accounts receivable and then reversed it right underneath with the allowance account so in any case using the allowance method has no effect on net income and as well as does putting it to the note receivable has no effect on net income until we earn the interest revenue on it because under both circumstances we already earned the revenue when we sold whatever we sold when we earned it when we got the accounts receivable when we put the accounts receivable on the books so now we need to do the same thing here and to the p account and take it off the books they no longer owe us money not because they paid us not because we're going to get the money in the future not because we transferred it to a note but because we gave up on it so we're going to say this equals that same 3800 bringing the balance for p company down to zero if we add up all of our subsidiary ledger accounts all the customers that owe us money they add up to 20 543 which should tie out to be the same as the amount on the trial balance as it is