FAR 10 - Receivables Flashcards
What is What is Bad Debt Expense?
Entry located on income statement. Shows amount of collectible account in a given period.
What is the matching account for Bad Debt Expense?
Allowance for Doubtful Accounts. Contra account to Bad Debt Expense.
Journal Entry for Bad Debt Expense
Dr Bad Debt Expense
CR Allowance for Doubtful Accounts
What does the NRV of A/R mean?
The amount you expect to collect within the accounting cycle.
Equation for NRV of Accounts Receivable
A/R - Bad debts = NRV
Journal entry to write off in Direct Write off method
DR Expense
CR A/R
Percentage of credit sales is attached to which financial statement?
Income Statement
% credit sales is used above or below the line in the allowance account?
Above the line
Which is better matching, income approach or balance sheet approach?
Income approach
Which has better asset valuation, credit sales or % of receivables?
% of Receivables
Aging of Receivables is which method?
Balance sheet, % of Receivables
Total amount of aging of accounts
represents what?
Total of doubtful accounts below the line that you are aiming for.
Journal entry to write off receivables
DR Allowance for Doubtful Accounts
CR A/R
Journal entry to Recover A/R
DR A/R
CR Allowance
DR Cash
CR A/R
What accounts will be listed on the Debit side of A/R?
Beginning balance of A/R
Sales
Recoveries
Ending Balance of A/R
What accounts will be listed on credit side of A/R?
Collections
Write offs
What accounts will be listed on debit side of Allowance for Doubtful Accounts?
Write offs
What accounts will be listed on credit side of the Allowance for Doubtful Accounts?
Beginning balance-Doubtful Accounts
Bad Debt Expense
Recoveries
Ending Balance - Doubtful Accounts
What is “pledging” receivables?
Where receivables are used as collateral in order to obtain a loan. This must be adequately disclosed in the FOOTNOTES.
What is “assigning” receivables?
Where I borrow money to produce a product to deliver to a company, and pledge the future receivables as collateral. Banks mandate receivables paid directly to them.
What is factoring
A way of obtaining money by a company involving a third party called a “factor”.
Explains how factoring works.
Company A needs money, and sells receivables to Company B, the factor either with or without recourse.
What is factoring without recourse?
Where a factor purchases receivables from a company, and receives either the gain or loss from the collections.
What is factoring with recourse?
If the factor is unable to collect the receivable from the debtor, then the company must pay him the amount.
How are returns handles within factoring?
A factor will usually hold back a certain amount of the factor fee to cover returns until the time limit for returns expires.
What three things are required to indicate sale of a receivable as opposed to a borrowing?
- Asset is out of reach.
- Other party has full rights and control of the asset.
- The transferor does not maintain control over it.
Journal entry for factoring if control is surrendered
DR Cash
DR Due from factor(withheld amount)
DR Loss of sale on receivables
CR Accounts Receivable
Journal entry for factoring if control is not surrendered
DR Cash
DR Interest Expense
CR Note payable
Another name for factoring without surrendering
Secured borrowing
Another name for factoring with surrendering
A sale
Journal entry for factoring without recourse
DR Cash & Amount due frm Factor(Holdback)
DR Loss on Factoring(Fee to Factor)
DR Allowance for Bad debts
CR Accounts receivable
Journal entry for factoring with recourse
DR Cash and Amount due from Factor(Holdback)
DR Loss on factoring
DR Allowance for bad debts
CR Liability on Transferred receivables
CR Estimated recourse liability
Formula for discounting:
Face Amount
+ Interest (Interest = Face x Int. rate x Term)
= Maturity
- Discount (Discount = Maturity value x Discount rate x Time remaining
=Proceeds
When discounting a not after holding it for 6 months you figure 1.)interest and 2.)discount based upon what?
- Interest based upon entire amount of bond
2. Discount based on remainder of maturity of bond
When a person has a participating interest in a financial instrument, that participating interest is figured as a percentage of carrying value or fair value?
Fair value
What are servicing assets and servicing liabilities?
Charges for servicing and maintaining financial instruments. If less than fair value, it is a servicing liability. If more, it is a servicing asset.
What is an IO strip?
A financial instrument it is a method of charging for servicing fees through percentage of interest payments received. N in “DENT”
