Current Assets & Liabilities Flashcards
What is accrued when a contingent loss is probable and estimable?
When a contingent loss is both probable and estimable, it must be accrued. When only a range of amounts can be estimated, and there is no best estimate, the lowest amount in the range is accrued for GAAP. Midpoint in range for IFRS.
When should vacation expenses be accrued ?
When compensated absences either accumulate OR vest, then the liability should be accrued. Benefits accumulate if they can be carried over to future years. Benefits vest if they are no longer contingent on continued employment. Sick Days are NOT REQUIRED to be accrued if no pay out is given for sick days not used
When should contingent losses be recorded or disclosed ?
Only accrue when *Probable and reasonably estimable*
If there is a range of estimates, use the minimum.
Disclose not accrue - Probable and Non-Estimable, Reasonably possible.
No action for Remote.
How do you calculate warranty expense?
Sales x % of warranty costs. Total expected costs are recognized upfront to match expense to revenue.
Ending Liability balance is accrued expenses less any payments made.
What is the entry to record a secured borrowing against A/R?
DR: Cash
CR: notes payable
Receivables are sold, but company retains control. Receivables are collateral for borrowing
What is the entry to record factoring on receivables?
DR: Cash
DR: Loss on sale of receivables
CR: Accounts Receivables
Assigns receivables to a factor (usually a bank) and receives cash in return. If w/o recourse, considered a sale, because it is up to factor to collect. If there is recourse, the. It could be sale or borrowing. Recourse liability would be established as additional credit.
How is pledging receivables recorded?
Disclosure only, no entry. Uses receivables as collateral, but less formal than secured borrowing
When are liabilities for layoffs recorded?
Communication date. Recognized at fair value, discounted to PV if it is distant future.
