Chapter 4: Accounts Receivable Flashcards
Assets that represents contractual rights to receive cash or other asset from another entity.
Receivables
Supported by oral or informal promises to pay.
Accounts Receivable
Arising from loans extended by financial institutions.
Loans Receivable
Arising from advances to officers, employees, suppliers, affiliates.
Advances
Classified as current assets when they are expencted to be realized in cash within the normal operating cycle of the business or one year.
Trade Receivables
Within what time frame must cash be realized for an asset to be considered a trade receivable?
- Within the normal operating cycle
- One year
- Whichever is the longer between the two
Supported by written or formal promises to pay in the form of promissory notes.
Notes Receivable
Income earned but not yet received.
Accrued Income
From reimbursable deposits paid to cover potential damages or losses.
Deposits
From insurance companies for casualties sustained, defendants under suit, government agencies for refundable taxes, and other remittances.
Claims Receivable
The time between the acquisition of assets for processing and their realization in cash or cash equivalents.
Normal Operating Cycle
How many months in the normal operating cycle of a business?
12 months
Current assets only when they are expected to be realized in cash within one year. Non-current if more than one year.
Non-trade Receivable
What is the journal entry needed to eliminate a credit balance in accounts receivable due to overpayment?
Debit - Accounts Receivable
Credit - Advances from customers
It is included in current liabilities as part of non-trade payables.
Advances from customers
Account included in current assets as part of non-trade receivables.
Advances to suppliers
What is the inital measurement of receivables?
Fair value plus transaction costs
Ownership transferred to buyer upon shipment.
FOB Shipping Point
Ownership is transferred only when the buyer receives the goods.
FOB Destination
Seller paid the freight in advance before shipment.
Freight Prepaid
Carrier will collect the shipping cost from the buyer upon delivery.
Freight Collect
Who will pay the shipping cost if:
FOB Shipping Point + Freight Collect
Buyer
Who will pay the shipping cost if:
FOB Destination + Freight Prepaid
Seller
Who will pay the shipping cost if:
FOB Destination + Freight Collect
The seller is responsible for the payment, but since the buyer covered the expense, the buyer can simply deduct the shipping cost from the total price of the goods.
Who will pay the shipping cost if:
FOB Shipping Point + Freight Prepaid
The seller covered the shipping cost at the time of shipment, but the buyer will include that shipping cost in the total price of the goods to reimburse the seller.
Given to encourage orders in large quantities or to avoid frequent changes in catalogs, to alter prices for different quantities purchased, or to hide the true invoice price from competitors.
Trade Discounts
Deducted from the list price when determining the invoice price. It is not recorded by either the seller or buyer.
Trade Discounts
The standard price set by a seller for a product or service before any discounts, promotions, or negotiations are applied.
List Price
The total amount the buyer is obligated to pay to the seller.
Invoice Price
Under this method, accounts receivable and sales are initially recorded at amounts gross of cash discounts. Cash discounts are recorded only when they are taken by the buyer.
Gross Method
Under this method, accounts receivable and sales are initially recorded at amounts net of cash discounts.
Net Method
Accounts receivale are measured at what value?
Net Realizable Value (NRV)
Given to encourage prompt payment. It is deducted from the invoice price when determining the net amount collectible within the discount period.
Cash Discount
Two methods to account for cash discount.
- Gross Method
- Net Method
The contra-asset account of accounts receivable.
Allowance for Doubtful Accounts
A balance sheet account representing estimated uncollectible receivables.
Allowance for Doubtful Accounts
An income statement account representing the cost of uncollectible accounts for a specific period.
Bad Debts Expense
Two methods of accounting for bad debts.
- Allowance Method
- Direct Write-off Method
Under this method, an allowance is recognized for bad debts expense when the collectibility of accounts becomes doubtful or questionable.
Allowance Method
Under this method, bad debts expense is directly written-off from the balance of accounts receivable only when the accounts are deemed worthless.
Direct Written-off Method
What is the journal entry for allowance method?
Debit - Allowance for Doubtful Accounts
Credit - Accounts Receivable
What is the journal entry for direct written-off method?
Debit - Bad Debt Expense
Credit - Accounts Receivable
The process of removing uncollectible amounts from the accounts receivable ledger.
Write-offs
The amounts collected from previously written-off accounts receivable.
Recoveries
