International accounting standards 7 Flashcards
receivables (znaczenie)
należności
Receivables:
- The term receivables refers to amounts due from individuals and companies
- Receivables are claims that are expected to be collected in cash
- Management of receivables is a very important activity for any company that sells goods or services on credit
- Receivables are important because they represent one of a company’s most liquid assets
Types of receivables:
- accounts receivable - Amounts customers owe on account that result from the sale of goods and services
- notes receivable - Written promise (formal instrument) for amount to be received. Normally requires the collection of interest.
- other receivable - Nontrade receivables suchas interest, loans to officers, advances to employees, and income taxes refundable
Accounts receivable: recognition
- Service organization records a receivable when it performs service on account
- Merchandiser records accounts receivable at point of sale of merchandise on account
- Seller may offer a discount to encourage early payment
- Buyer might return goods found to be unacceptable
- Sales returns reduce receivables
allowance (znaczenie)
odpis aktualizujący
Characteristic of accounts receivable:
- Measured at net realizable value (with exeptions) (Wyceniane według wartości netto możliwej do uzyskania (z wyjątkami))
- Sales on account raise possibility of accounts not being collected
- Seller records losses that result from extending credit as Bad Debt Expense
Uncollectible Accounts (znaczenie)
rachunki nieściągalne
Uncollectible accounts:
- Direct Write-Off Method (metoda bezpośredniego odpisu)
- No matching of expenses with revenues
- Receivable not stated at net realizable value
- Not acceptable for financial reporting purposes (with one exeption)
- Allowance Method
- Better matching of expenses with revenues
- Receivable stated at cash (net) realizable value
- Required for financial reporting purposes
conservatism (znaczenie)
ostrożność
Allowance Method for Uncollectible Accounts:
- Companies estimate uncollectible accounts receivable.
- Debit Bad Debt Expense and credit Allowance for Doubtful Accounts (a contra-asset account).
- Companies debit Allowance for Doubtful Accounts and credit Accounts Receivable at the time the specific account is written off as uncollectible.
estimate (znaczenie)
szacować
How are losses estimated?
- percentage-of -sales
- percentage-of- receuvables
Percentage-of-Sales:
- An assumed rate (przyjęta stawka) is applied to the amount of the credit sales made during the period
Percentage-of-Receivables:
- Management establishes a percentage relationship between amount of receivables and expected losses from uncollectible accounts
- Amount of bad debt expense that should be recorded is difference between required balance and existing balance in allowance account
- Aging schedule is usually prepared, and different rates are applied to different groups of receivables
Two major reasons to sell receivables:
- Receivables may be the only
reasonable source of cash. - Billing and collection are often time-consuming and costly.
Sale of Receivables to a Factor:
- Finance company or bank
- Buys receivables from businesses and then collects payments directly from customers
- Typically charges a commission to company that is selling receivables
- Fee ranges from 1% to 3% of receivables purchased
Debit Card Sales:
- Recorded same as cash sales
- (Lower) fee is paid to card issuer
Credit Card Sales
- Bank card sales recorded same as cash sales
- Private card sales recorded as receivables
- (Higher) fee is paid to card issuer
Promissory notes may be used
-when individuals and companies lend or borrow money,
- when amount of transaction and credit period exceed normal limits, or
- in settlement of accounts receivable
promissory notes (znaczenie)
weksle
What is promissory note?
Companies may grant credit in exchange for a promissory note. A promissory note is a written promise to pay a specified amount of money on demand or at a definite time
To the payee, the promissory note is
a note receivable
To the maker, the promissory note is
a note payable
Maturity date of a promissory note may be stated in one of three ways:
- On demand.
- On a stated date.
- At the end of a stated period
Note terms are expressed in:
- Months
- Days
Interest =
Face Value of Note × Annual Interest Rate × Time in Terms of One Year
Valuation (znaczenie)
wycena
Valuation of notes receivable:
- Short-term notes receivable are reported at their cash (net) realizable value
- Estimation of cash realizable value and recording bad debt expense and related allowance are similar to accounts receivable
Statement of Financial Position
- Identify on statement or in the notes each major type of receivable
- Report short-term receivables as current assets
- Report net amount
Income Statement:
- Report bad debt expense and service charge expense in operating expenses section
- Report interest revenue under “Other income and expense” in non-operating section
Accounts Receivable Turnover:
Accounts Receivable Turnover measures the number of times on average the receivables are collected during the period.
Accounts Receivable Turnover = Net Credit Sales/ Average net accounts reveivable
Average Collection Period in Days
Average Collection Period in Days measures the average number of days that a business has to wait to collect receivables
Average Collection Period in Days = Days in Year (365)/ Accounts Receivable Turnover
