F3- M2 Trade Receivables Flashcards
What is factoring without recourse A/R best described as?
Recourse means it is FINAL, it is a sales transaction. It is described as buyer takes on all risk of the loss. Therefore, risk is transferred to the other entity. Note: proceeds equal buyers commission and uncollectible accounts
What is discounting a note receivable?
Cashing in the note at that moment
How do you discount a note?
Value of the note at maturity (-) the discount rate of the bank.
How do you calc the discount rate of the bank?
effective interest rate (x) holding period of the note
How is revenue netted with sales that have an estimate of returns
Take the sales made during the month times the estimate of returns. Note: prior month sales or returns will not be considered.
What is the allowance method of recognizing bad debt
A method that allows the DECREASE OF specific uncollectible accounts when written off.
How is uncollectible accounts expense calced?
Beg allowance + recovery- uncollectible accounts. To get the ending we take ending (-) beginning AR and the expense is the squeeze in-between.
What is a method of estimating uncollectable accounts that emphasize asset valuation
aged receivables
What is the bad debt expense?
Uncollectable A/R plus the credit balance in A/R
What is the allowance of uncollectible accounts based on aging AR
Amount times estimated uncollectable
What is the allowance doubtful accounts formula?
Use T accounts: Debit of starting bal credit of write off gives us an ending balance. What is the plug?
How does an entry of uncollectible AR effect the NI
There is no change to NI. Since AR is debit we have to credit it and debit the allowance of bad accounts
What is Factoring AR?
Process of turning AR into cash quickly
What happens to AR in the company’s books once that AR is pledged?
The AR remains in the books
When discounting a note receivable what is the proceeds of the bank equal?
Maturity value less the discounted bank rate
