FAR 21 Flashcards
What is pledging of receivables
This is when you use receivables as collateral for a loan, but is less formal than secured borrowing
- A pledge is not reflected in the acts
- The agreement is basically that the co. will use collections from receivables to pay back the loan
- The the company defaults on the payments then the transferee can assume the remaining receivables as collateral
What is the difference between IFRS and GAAP with Receivables
- IFRS - the costs of transferring a receivable are included in the A/R
GAAP - these costs aren’t included
-Tested for impairment each period
GAAP - only when you think its warranted
- Recoveries are allowed
How are cash collections adjusted for Accounts written off and Increases to A/R
Accounts written off would reduce the amount you think you can collect and therefore reduce cash collections
- An increase in A/R means that more sales re not collected - less cash
- If sales are reduced by the increase in A/R - this means that the result will be equal to collections and accounts written off
If accounts written off are deducted - the results will be collections
What is the result when you write off an uncollectible using the allowance method
dr. ADA 100
cr. A/R 100
- you reduce both allowance and A/R
- as a result net A/R remains unchanged
- net income remains unchanged
- working capital remains unchanged
- net assets are unchanged
How do you report a note due in 9 months and a note due in 2 years on your balance sheet
the notes due in 9 months is a current asset and reported at face value (10,000)
The note due in 2 years is a long-term asset - and should be reported at its discounted present value
What are the JE when you have a non interest -bearing notes payable starting at Dec 31st
Since the note was discounted one year prior to maturity the proceeds from the discounting = face value of note(500K) minus the discount (500K * 10.8% = 54,000) net amount is 446,000
This discount is amortized over the 1 year term at the rate of $4,500 per month
at 12/31 - 5 months have lapsed so:
original carrying amount: $446,000
Amortization of discount (5*4500) 22,500
carrying amount on 12/31: $468,500
How should notes receivable be recorded
- At present value
- if 10K is due in 3 years a discount on the N/R is recorded.
- If you also have a
How do you record a 10% discount on the future purchase of a fixed amount of merchandise from a supplier over the next 3 years?
This is considered a prepaid expense
- this is recorded as a deferred charge
- this is treated as an asset on the balance sheet and is carried forward until used
A note receivable bearing a reasonable interest rate is sold to a bank with recourse. At the date of the discounting transaction, the note receivable discounted account should be
Increased by the face amount of the note
The money you get from selling the note receivable are considered a liability
The receivable is reclassified to notes receivable discounted
What are the JE for factoring without recourse
A/R 80,000Sales allowance 10% (80K * 10%), loss on factoring 5% (80K * 5%)
dr. cash 68000
dr loss on factoring 4,000
dr allowance 8,000
cr A/R 80,000
What are the two most important concepts of government financial reporting
- accountability
- inter-period equity
What is inter period-equity
This means having this period’s revenues cover this years expenses
What are the 6 characteristics of effective financial reporting
- Understandability
-reliability
-relevance
-timeliness
-consistency
-comparability
RR CC UT
What are the 5 elements of the statement of financial position
- Assets
- Liabilities
- Deferred inflow of resources
- Deferred outflow of resources
- Net Position (not net assets or net equity)
What are the 4 financial reporting implications of the legally adopted government budget
- expression of a public policy
- expression of financial intent
- form of control
- may provide basis for evaluating performance
