Receivables

Question 1

What are Receivables?

How are they listed?

Answer 1

Claims against others for Money, goods and services.

Listed at current assets if collected/realized within a year or operating cycle (whichever is longer)

Question 2

What are the types of Receivables?

Answer 2

Trade - comes from sales of goods and services. (A/R and N/R)

Non-Trade - other types of transactions. Listed separately on B/S. (Officers/employees/other affiliates etc)

Question 3

What are receivables classified as Current asset reported at?

List a valuation account

Answer 3

Net Realizable Value

Allowance for Uncollectible Accounts

Question 4

What are the methods of Sales Discount?

What are the differences?

Answer 4

Gross and Net

Gross Method -DR A/R and CR Sales for full amount at time of sale. You DR sales discount amount if you get cash within discount period

Net Method is initially recorded whether the discount is taken or not - DR A/R & CR Sales net of discount. Credit (eliminate) discount if not taken during period

Question 5

In accounting for uncollectible accounts what is the difference between the B/S Approach and the I/S Approach?

What’s the JE?

Answer 5

Balance Sheet - % of A/R & Aging of A/R

Income Statement - % of Sales

DR Uncollectible Accounts Expense
CR Allowance for Uncollectible Accounts

Question 6

What is the difference in reporting of Sales Discounts taken vs not taken reported on Financial Statements

Answer 6

Discount Taken - Other Income

Not Taken - Contra (Deduction) Sales

Question 7

What are the JE for Cash discounts for year end estimates of sales discounts

Answer 7

DR Sales Discounts

CR Allowance for Sales Discounts

Question 8

What are the JE for sales returns and allowances as they occur? Estimates At Year End?

Answer 8

As they Occur -
DR Sales Returns and Allowances
CR A/R

Year end -
DR Sales Returns and Allowances
CR - Allowance for Sales Returns and Allowances

Question 9

What is Factoring?

Answer 9

Transfer of A/R used to obtain short term financing. (with or without recourse)

Question 10

What is Pledging?

Answer 10

Process which receivables are used as collateral for a loan.

Disclosures in Notes or B/S

Question 11

What is a Note Receivable?

Answer 11

Contractual right to receive money on fixed or specified dates

Question 12

What are the types of Notes Receivable? What’s the difference?

Answer 12

Interest bearing & Non-Interest bearing.

Non-Interest nearing includes the discount (interest) at the Date of Sale

Question 13

What are the Interest and Non-Interest JE accounts for Date of sale, Adjusting entry and Collection date?

Answer 13

Sale
DR Notes Receivable (Face $) (Both)
CR Sales (Both)
CR Discount on N/R (Non-interest bearing)

Adjusting (1000 x 10% x 3/12)
DR Interest receivable (Interest bearing)
DR Discount on N/R (Non-Bearing)
CR Interest Income (Both)

Collection of Note
DR Cash (Face amount)
DR Discount (Non-Int)
CR Interest Receivable (IB)
CR Interest Income (Both)
CR N/R (Face $) (Both)

Question 14

What is with recourse? How is it treated?

Answer 14

Requires estimation of and recognition of recourse liability. Note may not live up to expectations.

Question 15

If Discounting qualifies as a sale what is the JE?

Answer 15

DR Cash
DR Loss on sale of Note
CR Notes Receivable
CR Interest Receivable

Question 16

If Discounting does NOT qualify as a sale what is the JE?

Answer 16

DR Cash
DR Interest/Financing Expense
CR Payable to Bank
CR Interest Receivable

Question 17

What is the JE when a dishonored note is payed?

Answer 17

DR Dishonored Note Receivable

CR Cash