Receivables Flashcards
What are 4 factors affecting receivables?
1- trade (quantity) discounts
2- cash (sales) discount
3- sales return and allowance
4- non-collectible accounts
At what value receivables are listed on balance sheet?
At Net Realizable Value
What accounts are contra to A/R?
Allowance for doubtful accounts
Allowance for sales discount
What accounts are contra to Sales?
Sales returns and allowances
Sales discount
Know this to survive.
Under cash basis of accounting, sales equal cash collected from customers. If customer doesn’t pay, we don’t sell and there’s no sale.
So to convert accrual basis sales to cash basis use this formula.
A/R Beg. Bal. + Sales - Write-offs - Customer Collections (X - this is what we are trying to find out) = A/R end.Bal
Is a note payable with maturity date less than a year recorded at its PV or at its face value?
REMEMBER:
A note with less than a year to maturity, is not Discounted to its PV. It’s simply taken as short-term liability and therefore recorded at its face value.
Examiners will try to trick so be careful.
U.S. GAAP requires receivables to be written down to what when impairment is imminent?
1- The PV of the future cash flows expected to be collected using the original effective interest rate for the loan, or
2- Market value if this value is more determinable.
Under IFRS, a cash generating unit is?
A smallest group of assets that can be identified that generate cash flows independently of the cash flows from other assets.
OR
The smallest group of assets that generate cash flows from continuing use.
What two methods are used to compute interest revenue after a note receivable has been impaired and written down to its new PV?
Interest method ( the one we use always to compute and amortize interest exp or rev.)
Cost-Recovery Method which only recognizes interest when the PV cost of the impaired note has been recovered. No yearly interest revenue entries are recorded.
