chapter 10

Question 1

what is trade receivables

Answer 1

refers to amounts owed by customers who buy goods and services from business in credit

Question 2

accounting information to consider when granting credit to customers

Answer 2

trade receivables balance
credit terms and cash discount
number of days trade receivables are overdue
existing customer’s’ history of repayment

Question 3

non-accounting information to consider when granting credit to customers

Answer 3

specific industry outlook
economic outlook
reputation of customers
new customers’ history of repayment

Question 4

impairment loss on trade receivables

Answer 4

refers to change in allowance
associated with matching theory- business should record change in expense in the same financial as credit income was earned

Question 5

what is allowance for loss of trade receivables

Answer 5

• refers to estimated amount of debts likely to be uncollectible
• associated with prudence theory - trade receivables balance should not be overstated and reflect the net amount that is collectible
• formula : estimated % x ending trade receivables balance
• contra-asset