F3 M2 Trade Receivables Flashcards
A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based on ____.
Aging the receivables
What do you add and subtract from Allowance for uncollectible accounts 1/1/Y1 to get to estimated uncollectible accounts per gaining 12/31/Y1? Beginning balance Add Subtotal Less Ending balance
Beginning balance Add: Provision for uncollectible accounts for year Subtotal Less: Uncollectible A&R written off Ending balance
Consignment goods are considered ____ not accounts receivable.
Inventory
Under the allowance method of recognizing uncollectible accounts, the entry to write-off an uncollectible account:
A. increases the allowance for uncollectible accounts
B. Has no effect on net income
C. Decreases net income
D. Has no effect on the allowance for uncollectible accounts
B
Dr Allowance for uncollectible accts
Cr. Accounts receivable
“Factoring receivables without recourse” causes the risk of uncollectible accounts to ____.
Transfer to the buyer
Using the direct write-off method to account for uncollectible accounts receivable: cash collections from customers would equal sales adjusted by (adding/deducting) account receivables written off and (adding/deducting) the increase in the accounts receivable balance.
Deducting
Deducting
When the allowance method of recognizing bad debt expense is used, the allowance would decrease when a (an):
A. Account previously written off becomes collectible
B. Provision for uncollectible accounts is recorded
C. Account previously written off is collected
D. Specific uncollectible account is written off
D
What happens to AR when part of AR is converted to notes receivable?
AR is lowered, Notes receivable is increased
Gearty Company sells $100,000 worth of goods to Smith Company. The terms of the sale are 2/10, n/30. Prepare the journal entries for the accounts receivable under the gross method.
First entry: Record the date of the sale
Second entry: What if the payment is received within the discount period?
Third entry: What if the payment is not received within the discount period?
Dr: AR $100,000
Cr: Sales $100,000
Dr: Cash $98,000
Dr: Sales discounts taken $2,000
Cr: AR $100,000
Dr: Cash $100,000
Cr: AR $100,000
Gearty Company sells $100,000 worth of goods to Smith Company. The terms of the sale are 2/10, n/30. Prepare the journal entries for the accounts receivable under the net method.
First entry: Record the date of the sale
Second entry: What if the payment is received within the discount period?
Third entry: What if the payment is not received within the discount period?
Dr: AR $98,000
Cr: Sales $98,000
Dr: Cash $98,000
Cr: AR $98,000
Dr: Cash $100,000
Cr: AR $98,000
Cr: Sales discounts not taken
What kind of account is sales discounts taken?
What kind of account is sales discounts not taken?
Contra-revenue
Revenue
Trade discounts are applied ____. Do not add the discounts together.
Sequentially, apply one at a time
____ oral promises to pay a debt, _____ written promises to pay a debt.
Accounts receivable
Notes receivable
Maturity value = _____ + ____
Present value + interest
Face value minus the unearned interest equals
Present value
What is the journal entry for discounting a notes receivable with recourse?
Dr Cash
Cr: Notes receivable discounted
Notes receivable discounted is what kind of account?
Contra-asset
When discounting notes receivable without recourse where does the risk of loss go?
Onto the buyer
What is the journal entry for discounting a notes receivable without recourses?
Dr Cash loss
Cr Notes receivable
What is the journal entry for writing off accounts receivable (or a portion of accounts receivable)?
Dr Allowance
Cr Accounts Receivable
Writing off accounts receivable (does/does not) affect the income statement and balance sheet.
Does not
Bad debt expense follows the ____ principle which would require the provision made throughout this year.
Matching principle
What is the journal entry for receiving a collection on a receivable that was previously written off using the direct write off method (not GAAP)?
Dr Cash
Cr Uncollectible accounts recovered (revenue account)
What is the journal entry for receiving a collection on a receivable that was previously written off using the allowance method (GAAP)?
Restore the AR:
Dr AR
Cr Allowance
Record the cash collection
Dr Cash
Cr AR
What does your current year provision do to your allowance account?
What does write offs do to your allowance account?
Increase
Decrease
___ is the process whereby the company uses existing AR as collateral for a loan. No Journal Entry. Requires a note disclosure only. AR is not adjusted.
Pledging
___ is the process by which a company can convert its receivables into cash by assigning them to a factor either without or with recourse.
Factoring
Factoring without recourse is consider a true ___. Decrease AR. The assignee assumes the ____.
Sale
Risk of loss
Which method of recording uncollectible accounts expense is consistent with accrual accounting? Allowance Direct write off Both Neither
Allowance
