Receivables Flashcards
How should A/R be reported?
At their NRV which is the gross amount of A/R less estimates of amounts that wont be collected for the year
Direct write-off method
one way of calculating bad debt expense; NOT GAAP b/c it violates matching and conservatism
no “bad debt expense” is set up, it is simply written off x years later by
expense
A/R
% of credit sales approach
aka income statement approach
credit sales * percent estimate uncollectible = bad debt expense
More fairly states the income statement because when you make a sale, you book the entry (matching!)
% of receivables method
aka balance sheet approach - more fairly states the b/s, better asset valuation
“aging of accounts receivable”
0-20days old = 2% uncollectible
21-60days old = 3# uncollectible
Total is the ENDING balance for the allowance account
Journal entry for write-off receivables
Allowance
A/R
Recovery of A/R
Cash
Allowance
Pledging a receievable
you’re using A/R as collateral. Must be disclosed in the footnotes
Assigning
proceeds from A/R will be sued directly to repay the lender; sometimes customer is told to repay lender directly
Factoring
selling A/R for cash with or without recourse
with: has to repay if customer doesn’t
without: lender assumes all responsibility
Sale of a financial instrument
1) Transferred the asset - out of our reach
2) New person can pledge it, transfer it, do whatever they want with it
3) Transferor does not maintain control
If at least one of these three is not met, then the instrument has been pledged/assigned as collateral, not sold