Module 9 Flashcards
amounts owed to the company by customers who purchased good or services from the company, amounts owed by customers
Receivables/trade receivables
When is a receivable recognized?
when revenue is recognized and the customer hasn’t paid
Revenue is recognizable when collection is probable. Even when it is probable that a customer will pay, is their still risk?
Yes, in collectability
How we account for the risk of uncollectability in AR?
Report at net realizable value
How does GAAP require AR to be reported?
Report at net realizable value. Company will report a gross balance minus an allowance account (contra asset).
What is common way to estimate credit loses?
incurred loss model, reflects losses that are probable, based on historical experience and typically a loss isn’t recognized until the account becomes overdue.*Under current GAAP, companies cannot look forward and based on current economic events make adjustments to their allowance.
What was FASB/IASB’s proposal to the incurred loss model.
Current expected credit loss model (CECL)
What was main change of CECL?
would require GAAP filers to use forward-looking information and to set the allowance equal to the expected credit losses over the life of the receivable
sundry items, ram materials, work in process and finished good
What is included in inventory
How is inventory recognized? And how is it shown on the BS?
Acquisition cost (if you didn’t manufacture them) + manufacturing costs, at the lower of cost or net realizable value
The expected selling price - minus estimated completion and selling costs
net realizable value
When costs are rising, cogs is lower, profit is higher, taxes are higher and inventory is higher.
FIFO
when costs are rising, cogs is higher, profit is lower, taxes are lower and inventory is lower
LIFO, only US GAAP allows LIFO
What do most companies use?
LIFO
Does cost flow = physical flow?
no
What is a holding gain?
With FIFO, If the first units purchased are always the first ones sold, then if costs are rising and therefore prices are rising, you will see a “holding gain” on what you sell just for holding inventory
What is a LIFO reserve?
difference between what inventory would have been if they’ve reported it in FIFO and what it is because they reported it as LIFO
if there is a decrease in physical inventory, a lot of old costs will be released and a holding gain will be embedded in gross profit. What is this?
LIFO liquidation
What must you do if you have lifo liquidation?
supposed to be separately reported and discussed in the MDA
What is the impact of producing more on cost per unit?
lower fixed cost per unit
Four categories of long lived asses
tangible, leases, intangibles other than goodwill, goodwill
what is the initial amount capitalized for a long lived asset?
all costs incurred to acquire the asset and make it ready for it’s intended use, includes avoidable interest + the fair value of any asset retirement obligations (AROs)
When do we start depreciating an asset
when its ready for its intended use
How are long lived and intangible asses capitalized?
Using the comprehensive cost model
