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FAR Personal Flashcards > FAR Module 12A > Flashcards

FAR Module 12A Flashcards

0
Q

These have to be readily convertible into cash and so near maturity that they carry little risk of changing in value due to interest rate changes.

A

Cash equivalents

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1
Q

Define cash

A

Cash includes both cash on hand and demand deposits as well as cash equivalents (including short-term and highly liquid investments)

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2
Q

Generally cash equivalents are investments with original maturities of how long

A

Three months or less from the date of purchase by the enterprise

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3
Q

Treasury bills, commercial paper, money market funds, and CDs are examples of what

A

Cash equivalents

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4
Q

T/F

cash set aside for special uses is usually disclosed separately

A

TRUE

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5
Q

The entry to set up a special fund for cash is what

A

Debit special cash fund

Credit cash

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6
Q

Any cash that cannot be used (restrictions) within the next year should be classified how

A

As a long-term/non current asset

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7
Q

T/F

Petty cash funds are generally included in the total cash figure

A

TRUE

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8
Q

T/F

unreimbursed expense vouchers are usually included in the total cash figure

A

FALSE

they are excluded

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9
Q

When can two bank accounts be netted against each other

A

Only when the two accounts are within the same bank

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10
Q

T/F

T-Bills, T-Notes, and T-Bonds are cash equivalents

A

FALSE

only T-Bills are cash equivalents and only if they have a maturity of 3-months or less

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11
Q

On a bank rec, these reconciliation items do not require any journal entries on the books

A

These are Type-A reconciliations

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12
Q

What are the three Type-A reconciling items

A

Outstanding checks
deposits in transit
bank errors

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13
Q

On a bank rec, these reconciliation items require journal entries on the books

A

Type-B reconciling items

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14
Q

What are the four Type-B reconciling items

A

Unrecorded returned nonsufficient fund checks Unrecorded bank charges
Errors in the cash account
Unrecorded bank collections of notes receivable

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15
Q

Describe format 1 for bank reconciliations

A

Balance per bank +/- Type-A adjustments =
correct cash balance

Balance per books +/- Type-B adjustments =
correct cash balance

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16
Q

Describe format 2 for bank reconciliations

A 
Balance per bank 
\+/- Type-A adjustments
\+/- Type-B adjustments
= balance per books
\+/- Type-B adjustments
= correct cash balance
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17
Q

A/R should be disclosed how in the balance sheet

A

At NRV (gross amount - estimated uncollectibles)

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18
Q

T/F

officer, employee, and affiliate company receivables should be separately disclosed

A

TRUE

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19
Q

T/F

Unearned interest and finance charges should not be deducted from gross receivables

A

FALSE

they should be deducted

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20
Q

Sales discount is what type of account

A

Contra revenue

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21
Q

Cash discounts are generally recognized as expense when

A

Cash payment is received within the discount period

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22
Q

When must a year end allowance be set up or sales recorded net of discounts

A

When discounts on year end receivables fluctuate

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23
Q

What is the JE to record a sale under the gross method ?

A 
Debit AR (gross)
credit sales (gross)
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24
Q

What is the JE to record cash receipt within the discount period under the gross method ?

A 
Debit sales discount (disc) 
debit cash (net) 
credit AR (gross)
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25
Q

What is the JE to record cash receipt after the discount period under the gross method ?

A 
Debit cash (gross)
credit accounts receivable (gross)
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26
Q

What is the JE to record a sale under the net method ?

A 
Debit AR (net)
credit sales (net)
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27
Q

What is the JE to record cash receipt within the discount period under the net method

A 
Debit cash (net) 
credit accounts receivable (net)
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28
Q

What is the JE to record cash receipt after the discount period under the net method ?

A

Debit cash (gross)
credit accounts receivable (net)
credit discount not taken (disc)

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29
Q

T/F

Under both the net and gross methods, sales & A/R is recorded net of trade discounts

A

TRUE

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30
Q

What are the two approaches to bad debts

A

Direct write off method

allowance method

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31
Q

Under this approach to bad debt expense, bad debts are considered expensed in the period in which they are written off

A

This is the direct write off method

32
Q

T/F

The direct write off method is acceptable under GAAP

A

FALSE

The direct write off method is not considered acceptable under GAAP unless the amounts are immaterial

33
Q

This approach to Bad debt expense is the method required for tax purposes

A

The direct write off method

34
Q

This approach to bad debt expense seeks to estimate the amount of uncollectible receivables and establishes a Contra valuation account (or allowance for bad debt) for the amount estimated to be uncollectible

A

This is the allowance method

35
Q

What is the journal entry for the direct write off method

A

Debit bad debt expense

credit accounts receivable

36
Q

What is the journal entry for the allowance method to set up the allowance

A

Debit bad debt expense (estimated number)

credit allowance for bad debts (estimated number)

37
Q

What is the journal entry to write off bad debt under the allowance method

A

Debit allowance for bad debt

credit accounts receivable

38
Q

What method must you use when approaching bad debts that are material?

A

The allowance method

39
Q

Bad debt expense is considered to be what type of expense?

A

A selling expense

Customers are more likely to buy under credit. Bad debts are a result of allowing A/R, which increases sales

40
Q

T/F

An appropriate amount of bad debt expense is good for business

A

TRUE

bad debt expense is a result of allowing sales on account, which increases sales volume

41
Q

What are the two methods to determine the estimated allowance for bad debts under the allowance method

A

The percentage of sales method

the aging method

42
Q

This method of estimating allowance for bad debts is known as the income statement method

A

The percentage of sales method

43
Q

This method of estimating allowance for bad debts is known as the balance sheet method

A

The aging method

44
Q

How do you calculate allowance for bad debts under the percentage of sales method

A

Bad debt expense is:

Sales X %

45
Q

How do you calculate allowance for bad debts under the aging method

A

Accounts receivable are classified by their age (30, 60, 90, 120 etc. days overdue)

Each subcategory is multiplied by a different percentage based on their likelihood of never being paid

46
Q

Between the two methods of determining allowance for bad debts (the percentage of sales method and aging method) which one does better matching

A

Percentage of sales method

The expense is matched directly to the current sales

47
Q

Between the two methods of determining allowance for bad debts (the percentage of sales method and aging method) which one calculates a more accurate net accounts receivable balance

A

The aging method

48
Q

T/F

The policy for charging off uncollectible trade accounts receivable does not need to be disclosed for receivables that have a contractual maturity of one year or less and arise from the sale of goods or services

A

FALSE

these policies must be disclosed

49
Q

Describe the T Account for the Allowance Account

A 
Beg. Balance 
\+ Bad Debts Expense 
\+ Recoveries
- Write Offs
= Ending Balance
50
Q

This method of approaching bad debts decreases both accounts receivable and net income

A

The direct write off method

51
Q

Servicing arrangements, recourse arrangements, guarantees, agreements to purchase or redeem transferred financial assets, options written or held, derivative financial instruments that are entered into with contemplation of a transfer, arrangements to provide financial support, pledges of collateral, and transferor’s beneficial interest in the transferred financial asset

These are all examples of what

A

Transfers and servicing of financial assets

52
Q

The major type of transfers of financial assets include (6)

A 
Securitization 
factoring 
transfers of receivables with recourse 
repurchase agreements 
Loan participations
bankers acceptances
54
Q

Purchasing and selling securities that are collateralized by a pool of assets, such as a group of receivables

A

Securitizations

55
Q

Selling receivables at a discount to obtain immediate cash

A

Factoring

56
Q

Selling receivables at a discount to obtain immediate cash but retaining the risk of loss if the customer does not pay the amount owed

A

Transfers of receivables with recourse

57
Q

An agreement to sell an asset to a lender and later repurchase the asset. These agreements are in effect using the asset as collateral for a loan

A

Repurchase agreements

58
Q

A situation where a group of financial institutions (called participating interest holders) purchases a share of a financial instruments (loan)

A

Loan participations

59
Q

When can you record the giving up of assets as a sale?

A

When the transferor surrenders control of the financial assets and the following conditions are met:

1) the assets are isolated and beyond the reach of the transferor and its creditors even in bankruptcy or receivership
2) the transferee can pledge or exchange the asset without unreasonable constraints or conditions
3) the transferor does not maintain effective control over the transferred financial assets or a third-party beneficial interest in the assets

60
Q

Transfers of financial assets are disaggregated into separate components of assets and liabilities. Each entity involved in the transaction does what

A

1) recognizes only the assets it controls and liabilities it incurred after the transaction has occurred
2) derecognizes assets for which control has been given up or lost and liabilities for which extinguishment has occurred

61
Q

An order from a customer of a bank for the payment of a specified sum of money (like a post dated check) that may be bought and sold

A

A bankers acceptances

62
Q

The important determination in accounting for transfers of assets is whether the transaction is accounted for which of two ways?

A

1) as a sale of an asset

2) as a secured loan with the asset as collateral

63
Q

What conditions must be met for a transfer to be accounted for as a sale

A

1) the transferor surrenders control of the financial assets
2) the transferred financial assets are isolated and beyond the reach of the transferor and its creditors even in bankruptcy or receivership
3) the transferee can pledge or exchange the assets without unreasonable constraints or conditions
4) the transferor does not maintain effective control over the transferred financial assets or a third-party beneficial interest in the assets

64
Q

Transfers of financial assets are disaggregated into separate components of assets and liabilities. Each entity involved in the transaction recognizes this event how?

A

1) recognizes only the assets it controls and liabilities it incurs after the transaction has occurred
2) Derecognizes assets from which control has been given up or lost and liabilities for which extinguishment has occurred

65
Q

The proceeds received from the sale of financial assets equal what?

A

Cash and other assets obtained (including separately recognized servicing assets) - any liabilities incurred.

66
Q

When accounting for transfers of participating interests, in order to be eligible for sale accounting how is the financial asset treated?

A

It cannot be divided into components before the transfer unless all the components meet the definition of a participating interest

67
Q

What are the four characteristics of a participating interest?

A

1) the interest is a proportionate ownership interest in an entire financial asset
2) all cash flows received from the assets are divided proportionally among the participating interest holders based upon their share of ownership
3) the rights of each participating interest holder have the same priority
4) no party has the right to pledge or exchange the financial asset until all participating interest holders agree

68
Q

Define factoring

A

Factoring traditionally involves the outright sale of receivables to a financing institution known as a factor

69
Q

What two arrangements are involved in factoring?

A

1) notification to the customer to forward future payments to the factor
2) transfer of receivables without recourse

70
Q

What does “without recourse” mean

A

That the factor assumes the risk of loss from non-collection. Thus, once a factoring arrangement is completed the entity has no further involvement with the receivables unless the customer decides to return the merchandise

71
Q

What are the two financial benefits to factoring without recourse

A

1) it permits the entity to obtain the cash earlier

2) the risk of bad debts is transferred to the factor

72
Q

What is the “holdback” account for?

A

To protect against the possibility of merchandise returns (which diminish the total amount of the receivables to be collected), the factor will often holdback a portion of the total amount of the receivables factored.

The transferor will charge any merchandise returns to a “factors holdback receivable” account that is created when the receivables are factored. At the end of the return privilege period, any remaining holdback will become due and considered a payable to the factor

73
Q

What other payments are involved in a factoring situation?

A

1) a fee to compensate the factor for each of the aspects of the transaction, specifically upon the anticipated bad debt losses
2) interest is charged based on the anticipated length of time between the date the factoring is consummated and the expected collection date of the receivables sold

74
Q

If factoring arrangements are with recourse, what happens if a customer does not pay the factor

A

The transferor must pay the factor the amount due on the account

75
Q

T/F

A transfer with recourse qualifies for sale treatment

A

Depends

The rules for transfer of receivables with recourse vary by jurisdiction. Therefore, transfers with recourse may or may not qualify for sale treatment

76
Q

Define an outstanding check

A

An outstanding check is a check that has been written by a company and deducted from the appropriate general ledger account but it has not yet cleared the bank on which it is drawn. Hence outstanding checks will mean that the balance in the bank account will be greater than the balance in the general ledger account

77
Q

For a company that uses the allowance method to recognize uncollectible accounts expense, what are the journal entries required at the time of collection of an account previously written off?

A

Reverse write off :
Debit accounts receivable
Credit allowance for uncollectible accounts

Record cash receipt:
Debit cash
Credit accounts receivable

78
Q

What is an assignment

A

An assignment of accounts receivable is a financing arrangement whereby the owner of the receivables (assignor) obtains a loan from the lender (assignee) by pledging the Accounts Receivable as collateral

79
Q

If financial assets are exchanged for cash or other consideration but the transfer does not meet the criteria for sale the transferor and the transferee should account for the transaction how

A

As a secured borrowing

And a pledge of collateral

FAR Personal Flashcards (34 decks)

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