Accounts Receivable Flashcards
Allowance Method for Uncollectible Accounts
The percentage of uncollectible accounts is applied to the ending balance of gross accounts receivable, to obtain the desired ending balance of the allowance for uncollectible accounts.
Loan Impairment
when, “based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement.”
Loan Foreclosure - Not Probable
creditor measures the impaired loan at one of the following: (1) the loan’s observable market price, (2) the fair value of collateral pledged, or (3) the present value of future principal and interest cash inflows, net of discounted disposal costs, all discounted at the loan’s effective interest rate.
Loan Foreclosure - Probable
the second method is to be used to value a collateral dependent impaired loan.
Entry to Record Write off of Account
decrease both accounts receivable and allowance for uncollectible accounts. It has no impact on net income or total assets.
Write - off of Receivables
offset the gross increase in A/R without affecting cash.
Cash Collections from Customers
equal sales adjusted by a deduction for an increase in A/R balance and a deduction for accounts written-off during the period.
Discount Note Receivable with Recourse
contingently liable to the lender. It must pay the lender the amount due at maturity if the maker of the note fails to pay the obligation.
Presentation of Discounted with Recourse
The contingent liability is usually shown in the accounts by recording the note discounted in a Notes Receivable Discounted account at the note’s face amount. The Notes Receivable Discounted account is reported as a contra asset and deducted from Notes Receivable in the balance sheet.
Non - Interest Bearing Note
If a non-interest bearing (or low) note is exchanged for cash and a promise to provide future goods at lower-than-usual market prices, the issuer values the note at present value. The difference between present value and the cash payments is to be recognized as a part of the future goods’ cost, i.e., a deferred charge.
Entry to Record Collection Previously Written off as Uncollectible
These entries would increase cash and allowance for uncollectible accounts. They would have no net effect on net accounts receivable, net income, current assets, or working capital.
Disaggregation Disclosures
disclosures on two levels of disaggregation: portfolio segment and class of financing receivable.
Portfolio Segment
the level used by the entity in developing and documenting a systematic method for determining the allowance for credit losses.
Class of Financing Receivables
represents a disaggregation of a portfolio segment, based on initial measurement attributes, risk characteristics of the financing receivables, and methods used by reporting entities related to monitoring and assessing credit risk.
Interest Bearing Note
For interest-bearing notes calling for the prevailing rate of interest at the time of issuance, the present value of the note is the same as the face amount of the note. When a note is exchanged for cash and a promise to provide merchandise at a discount from market price, the issuer records the note at present value. The difference between fair value and cash payments is recognized as interest revenue over the contract life and is recorded as part of the cost of the related merchandise.
