Receivables Flashcards
How is Bad Debt Expense recorded?
DR Bad Debt Expense
CR Allowance for Bad Debts
How is a receivable written off?
DR Allowance for Bad Debts
CR A/R
No net effect on value
How is a recovery of A/R recorded?
DR A/R
CR Allowance for Bad Debts
DR Cash
CR A/R
When is the transfer of a financial instrument considered a sale?
When ALL THREE conditions are met:
- Transferred financial instruments have ben isolated and beyond reach of transferor
- Transferees have right to pledge or exchange asset
- Transferor does not maintain effective control over financial instrument
If all three not met, then considered as pledged or assigned for collateral for borrowing transaction
When does a transferor of a financial instrument maintain effective control?
- Transferor can repurchase transferred instruments
- Transferor can require transferee to return instruments
- Transferee can require transferor to repurchase instruments at a favorable price to transferee
How is a sale of A/R with recourse recorded?
DR Cash/Due from Factor
DR Loss on Factoring
DR Allowance for Bad Debts
CR Liability on Transferred Receivable
CR Estimated Recourse Liability
Recorded as a payable
How is a sale of A/R without recourse recorded?
DR Cash/Due from Factor
DR Loss on Factoring
DR Allowance for Bad Debts
CR A/R
Recorded as a sale
How is an interest bearing note receivable sold calculated?
Face Amount
+ Interest (Interest = Face x Rate x Term)
= Maturity Value
- Discount (Discount = Maturity Value x Discount Rate x Time Remaining)
= Proceeds
How is a N/R recorded with a reasonable interest rate?
Record at face value
How is N/R recorded with an unreasonable interest rate?
Use FMV of goods or FMV of note, whichever more easily determinable
How is N/R recorded when an interest rate is not stated or FMV of goods/note not determinable?
Impute an interest rate
Receivable carried at PV of payments discounted at fair interest rate
