Receivables Flashcards

1
Q

How should A/R be reported?

A

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

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2
Q

Direct write-off method

A

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

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3
Q

% of credit sales approach

A

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!)

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4
Q

% of receivables method

A

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

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5
Q

Journal entry for write-off receivables

A

Allowance

A/R

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6
Q

Recovery of A/R

A

Cash

Allowance

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7
Q

Pledging a receievable

A

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

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8
Q

Assigning

A

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

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9
Q

Factoring

A

selling A/R for cash with or without recourse

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

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10
Q

Sale of a financial instrument

A

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

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