Receivables Flashcards
What does accounts receivable arise from? Pg. 13-1
How does A/R get valued on the balance sheet?
Arise from the sale of goods or the performance of services; they are related to normal operations
Should be reported at their NET REALIZABLE VALUE => amount to be received between one year or the accounting cycle, whichever is longer; NRV is gross amount of A/R less estimates of amounts that wont be collected due to…Pg. 13-1
(Think journal entry of getting a receivable and bad debt expense; the difference is NRV)
What are two acceptable methods of calculating bad debt expense Pg. 13-2
1) Income statement approach: % of credit sales method
2) Balance sheet approach: % of receivables method
- Difference when calculating of T-account?
- When they ask for adjustments?
1) Emphasis of MATCHING principle
2) Emphasis of ASSET VALUATION; aging of A/R
*I/S: amount uncollectible is expense; find ending allowance balance
B/S: amount uncollectible is ending balance; find adjustment to allowance
*Find the difference
How do you generate cash from a receivable without waiting until it is collect from the customer? Pg. 13-3
a) Pledging
b) Assigning
c) Factoring
a) Offers the lender the A/R as collateral to secure a loan
b) Tells the customer to pay the receivable to someone else
c) Selling the A/R to another company for cash; includes with or without recourse
How do you determine if a TRANSFER of an asset is a sale or is it borrowing Pg. 13-5
Sale occurs if these 3 conditions are met:
1) Transferred asset and out of reach of transferror
2) Transferee can pledge/exchange asset without restriction
3) Transferror does not maintain effective control
How to calculate an interest bearing note receivable that has been discounted Pg. 13-7
Face amount
+ Interest (Interest = Face x Interest rate x Term)
= Maturity value
- Discount (Discount = Maturity value x Discount rate x Time Remaining
= Proceeds
How do you record A/R? Pg. 13-9
How do you record long term receivable?
You record it at Face Value because it occurs in the ordinary course of business
Not in the ordinary course of business so record at Present Value (time value of money)
When do you use the present value tables? Pg. 13-9
What about A/R that occurs in the ordinary course of business?
When the item on the balance sheet is long-term (over one year) that is not in the ordinary course of business
Record at face value
If there is a loan impairment, how do you write down?
3 options
Pg. 13-8
1) PV of future principle and interest inflows
2) Loan’s market price
3) FV of the collateral
How do you find NRV? Pg. 13-1
Think of the journal entry for sale via credit sales, and the amount that you will NOT receive from the credit sale
What is using the aging method for receivables? Pg. 13-2
What is the significance of aging of A/R?
Use the chart, and that will be your allowance for doubtful
It determines the portion uncollectible for each category; gives you the ending balance for allowance for doubtful accounts
How do you calculate the receivables carrying value?
Pg. 13-9
Notes receivable net of discounts or premiums
What should you look for in dates?
JULY you lie!!!
What do you think of when you impute an interest rate?
Pg. 13-9
Think of receivables and liabilities; pay the note receivable for a good or service Notes receivable: debit Discount on N/R: credit Equipment: credit Gain on sale: credit
- Use PV of carrying value => difference of notes receivable and discount on N/R
- Impute because dont know interest and FMV of note, and it is unreasonable to have zero interest, therefore impute
If interest in involved, what is important to look out for? Liabilities #16
Look at DATES!!!
When do you use the present value table?
Only when the note will be due in over a year; if less than one year DO NOT use the table
