1: The Brown Company sells small office equipment and fixtures on credit. Their

Question

1: The Brown Company sells small office equipment and fixtures on credit.  Their ending balance in Accounts Receivable for 2012 was $120,000.  It was expected that $5,000 of this balance would later prove to be uncollectible, so Brown set up an Allowance for Doubtful Accounts for $5,000, and declared $5,000 as Bad Debts Expense for 2012.  In June of 2013, Brown determined that a $1,285 receivable owed by Molly Quinn should be written off.  Discuss the impact that this June write off action will have on Brown's Net Income for 2012 and 2013, and explain your answer.

2: What is the difference between an account receivable and a note receivable? Give an example of each.

Explanation / Answer

2. An account receivable is a written promissory note for the lender. It is considered a current asset for a lender. It is considered an account that is expected to be fully paid off within one year or one accounting cycle, whichever is more.

For example- Let's assume Company MNO sells merchandise worth of $1,000 to Company XYZ on credit. This sale will be recorded as an account receivable by Company MNO and expect to receive $1,000 within one year or an accounting cycle.

A note receivable is also a written promissory note for the lender, but considered a long-term asset for a lender. It generally is expected to be fully paid off in more than one year or accounting cycle.

For example- Let

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