FAR Trade receivables

Question 1

What are the 2 methods used to estimate uncollectible AR

Answer 1

1. Direct write off method

2. Allowance method (Accepted by GAAP) or the Current Expected Credit Losses (CECL)

Question 2

What are the 2 methods under allowance, used to estimate uncollectible or doubtful debt accounts on the balance sheet

Answer 2

1. The percentage of AR at year-end (Balance sheet Approach)

2. Aging receivables Method (Balance sheet approach)

Question 3

What are the criteria for a sale of AR to a factor be considered as final?

Answer 3

1. The transferor (seller’s) obligation for uncollectible accounts can reasonably be estimated
2. The transferor surrenders control of the future economic benefits of the receivables to the buyer
3. The transferor cannot be required to repurchase the receivables but may be required to replace the receivables with other similar receivables.