Receivables

Question 1

How should A/R be reported?

Answer 1

At their NRV which is the gross amount of A/R less estimates of amounts that wont be collected for the year

Question 2

Direct write-off method

Answer 2

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

Question 3

% of credit sales approach

Answer 3

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!)

Question 4

% of receivables method

Answer 4

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

Question 5

Journal entry for write-off receivables

Answer 5

Allowance

A/R

Question 6

Recovery of A/R

Answer 6

Cash

Allowance

Question 7

Pledging a receievable

Answer 7

you’re using A/R as collateral. Must be disclosed in the footnotes

Question 8

Assigning

Answer 8

proceeds from A/R will be sued directly to repay the lender; sometimes customer is told to repay lender directly

Question 9

Factoring

Answer 9

selling A/R for cash with or without recourse

with: has to repay if customer doesn’t
without: lender assumes all responsibility

Question 10

Sale of a financial instrument

Answer 10

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