Current Assets & Liabilities Flashcards
How is Days to Collect A/R calculated?
Average A/R / Average Sales per Day
How are gain contingencies recorded?
They are NOT accrued due to Conservatism
When are loss contingencies recorded?
If Probable - they are accrued (if estimable) and disclosed
If Reasonably Possible - they are disclosed
If Remote - don’t accrue or disclose
JE for recording sales/receivables at net
Record sales at net
Credit Sales discounts not taken (if not taken) when payment is received
Cash (gross)
A/R (net/reverse)
Sales discount not taken
If payment received within the discount period, DO NOT record any sales discount not taken.
JE for recording sales/receivables at gross
- Record sales at gross
If allowance method is used: need 2nd entry for the sales discount
Sales Discount
Allowance for Sales Discount
- Debit Sales Discount upon receipt of payment
Cash
Sales Discount
A/R (gross)
Bad Debts JE
- Direct Write Off
Bad Debts
A/R
- Allowance method
Bad Debts
Allowance for BD
Allowance for B D
A/R
What is transfers and servicing of financial assets?
is the transfer of an entire financial asset, a group of financial assets, or a participating interest in an entire financial asset.
Transfers and servicing of financial assets include:
securitizations factoring transfers of receivables with recourse repurchase agreements loan participations banker's acceptances
It is the purchasing and selling securities that are collateralized by a pool of assets such as group of receivables
Securitizations
It is the selling of receivables at a discount to obtain immediate cash
Factoring
An agreement to sell an asset to a lender and later repurchase the asset; using the asset as collateral for a loan
Repurchase agreements
A group of financial institutions purchases a share of financial instruments
Loan participations
An order from a customer of a bank for the payment of a specified sum of money (post dated check) that maybe bought and sold
Banker’s acceptance
Criteria for a financial asset transfer to be accounted for as a sale:
Transferor surrenders control and
- assets are isolated/beyond reach of the transferor and creditors even in bankruptcy or receivership
- no unreasonable constraints/conditions upon transfer
- transferor does not maintain control over assets or a third beneficial interest in the asset
Accounting for liabilities from litigation
If probable and estimable:
Loss from litigation
Liability from litigation
#most conservative amount
Upon settlement:
Liability from litigation
Cash
Recovery of loss from litigation
# if actual settlement is < recorded liability
Criteria for accruing compensated absences
JE
- services already rendered
- right that accumulates or vests
- payment is probable
- can be reasonably estimated
Salaries and wages
Accrued liability for compensated absences
Life insurance policy - JE
Monthly/yearly payment
transactions affecting the cash surrender value account are premiums paid and dividends received
Life insurance expense should be netted by the
cash discount received
Premiums paid - addition to CSV of policy
/Dividends received - deduction from the premium
Yearly payment constitutes premium expense and contribution to the cash surrender value of the policy
Premium of life insurance expense
Cash surrender value of LI
Cash
Cash
Premium of life insurance expense
GIFT CERTIFICATE ACCOUNTING
Cash
Deferred revenue
Deferred Revenue
Revenue
FRANCHISE ACCOUNTING
IF FUTURE SERVICES ARE REQUIRED FOR THE FUTURE PAYMENTS:
Cash 30,000
Notes Receivable 45,000
Discount on NR 9,000
Franchise revenue 30,000 cash received
Unearned franchise fees 36,000 (PV of
installments)
IF NO FUTURE SERVICES ARE REQUIRED, CREDIT 66,000 TO REVENUE
Be EXTRA CAREFUL IN computing the Adjusting entry amount for Allowance for Doubtfl Accounts in AR
if it is based on % of AR, this amount is the new target. Compute the amount to be adjusted.
Periodic franchise payments based on revenues - how are they recognized?
expensed as incurred
