27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Receivables on the balance sheet

List any errors you can find in the following partial balance sheet:

Napa Vino Company Balance Sheet December 31, 20Y9
Current assets:
Cash $ 78,500
Notes receivable $ 300,000
Less interest receivable 4,500 295,500
Accounts receivable $1,200,000
Plus allowance for doubtful accounts 11,500 1,211,500

To determine

Note receivable:

Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.

Interest on note:

Interest on note is the amount charged on the principal value of note for the privilege of borrowing money. Interest is to be paid by the borrower and to be received by the lender.

Accounts receivable:

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

To list: The errors found in partial balance sheet.


List the errors found in the partial balance sheet.

Interest receivable is also a current asset; hence it is not supposed to be deducted from the note receivable. Hence, interest receivable should be reported separately under the current asset section.

The allowance for doubtful account is a contra asset (accounts receivable) account, and its normal balance is a credit balance. Thus, it should not be added with accounts receivable, instead it should be deducted from accounts receivable, to show the amount of net accounts receivable.

Thus, the corrected balance sheet should be appeared as follows:

Company NV
Balance sheet

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