M3 - M2 - Trade Receivables Flashcards
Valuing accounts receivable requires reductions (4)
1) bad debts, 2) sales returns and 3) allowances, and 4) sales discounts
___________ balance is the approximating cash expected to be collected.
net accounts receivable
Sales and related receivables can be recorded using either the _______ method or the theoretically preferred ______method.
Gross method or net method
What is the JE to record a Receivable of $100 with a 1% discount at Gross method?
DR Receivable - $100 , CR Sales - $100
What is the JE to record a Receivable of $100 with a 1% discount at Net Method
DR Receivable - $99, CR $99
The ____ method records a sale without regards to the available discount, if payment is received with the discount period, a sales discount account is debited for the amount
Gross Method
Accounts receivable is presented on the balance sheet at the ____________.
net realizable value
Estimating uncollectible accounts receivables includes the following methods (2)
Direct Write-off Method and Allowance method
________ method: used for tax; it is not GAAP.
Direct Write-off Method
In the _________ approach (percent of ending A/R and aging method), the ending balance in the allowance account must equal an amount determined by an analysis of the A/R schedule.
balance sheet approach
In the allowance method, writing off an account receivable involves debiting the ______ and crediting ___________.
allowance, accounts receivable
When collecting an account previously written off, restore the _______ and the _______ and then record the collection in the normal way.
account receivable and allowance and DR Cash, CR AR
Factoring receivables can be done either (2)
with or without recourse.
_________ means the transferor retains the risk of uncollectibility.
With recourse
Factoring _______ is a sale of the receivable and the assignee assumes the risk of loss.
without recourse
_______ is a oral promise to pay debts and are generally classified as current asset
Accounts Receivable
______ is an account receivable from purchases of the company’s goods and services
Trade Receivables
_______ accounts receivable are from person other than customers such as advances from employees, tax refunds
Non-Trade Receivables
What is the Base formula for Accounts Receivable
Beginning Balance + Credit Sales - Cash Collected, AR Concert to NR, and AR written off as bad Debis = Ending Balance
_________ are quoted in percentage, sales revenues and AR are recorded net of _________. and these are applied sequentially
Trade Discounts
What is the JE to record the direct write-off method
DR Bad Debt Expense , CR Accounts Receivable
There are two ways to record the allowance method
Percentage of Accounts Receivable, Aging of Receivable method
________ notes receivable involves transferring the note to a third party, usually for cash.
Discounting
Discounting notes receivable involves transferring the note to a third party, usually for cash. This transfer can be ___________
with or without recourse.
If Discounting notes receivables is done with recourse a ______ is created for the transferor
Contingent Liability
Discounting Notes Receivable - Determining the proceeds to be received requires deducting __________ from the maturity value of the note.
deducting the banker’s discount (interest) from the maturity value of the note.
How is the discount calculated
The discount is calculated using maturity value, discount rate, and time left to maturity.
______ is the process whereby the company uses existing accounts receivables as collateral for a loan
Pledging
In pledging, the company retains the title to the receivables but pledges that will use the proceeds to pay the loan. How is it treated
Pledging requires only note disclosures
How do you record a Factoring without recourse (If sale is final)
DR cash, DR Due from Factor, Loss on sale of Receivable XXXX. CR Receivable
The asset account ______ reflects the proceeds retained by the factor
Due to Factor
What are the two options for with resource for Factoring of Accounts Receivables
A) A Sale or B) Borrowing (with AR as collateral)
In order to be considered a sale, the transfer must meet what conditions
1) Transfer obligation for uncollectible can be estimated. 2) The transfers surrenders control of future benefits. 3) The transferor cannot be required to repurchase the receivables, but may be required to replace them with other similar receivables. (treated as a lone if any of them are not)
In a ______ account receivable are transferred to a different entity, such as a trust or subsidiary. The entity then sells securities that are Collateralized by the A/R invested receive cash as the accounts receivables are paid.
Securitization
__________ refers to the sale of a note to a third party, usually a bank or other financial institution.
Discounting
The ___________ is the amount of potential loss the entity would suffer if all parties to the financial instruments failed completely to perform and the amounts due proved to be of no value to the entity.
total risk of accounting loss
A __________ is defined as the level used by the entity in developing and documenting a systematic method for determining the allowance for credit losses
portfolio segment
What is the JE for recording a Contentigency liability when selling a Notes receivable to the bank with recourse
Dr Notes Receivable
CR Notes Receivable Discounted
