Study Unit 6: Receivables Flashcards
When transferring a % of participating interest, the carry amount of the entire financial asset is….
allocated based on the relative fair values between the interests sold and retained.
Define Sale as it relates to the transfer of financial assets
A transfer of financial assets over which the transferor relinquishes control
What is the journal entry to record noninterest-bearing notes that DO have an explicit interest?
Note Receivable (Face Amount) DR
Cash CR
Discount on note CR
At end of period:
Discount on Note DR
Interest Revenue CR
What is the journal entry under the Net method to record payment received after the discount period?
Cash (Face amount) A/R (After discount taken) Sales discount (discount amount) Forfeited
1) What is the journal entry to record a write off of a specific accounts receivable?2) What are the journal entry’s to record an A/R that was previously written off but paid at a later time?
1) Allowance for uncollectible accounts DR Accounts receivable CR2) Accounts Receivable DR Allowance for uncolletible accounts CR Cash DR Accounts Receivable CR
According to GAAP, what are the 2 approaches to accounting for bad debts?
1) Direct write-off method (NOT allowed under GAAP) - expenses bad debts when they are determined to be uncollectible2) Allowance method (required under GAAP) - attempts to match bad debt expense with the related revenue. Records bad debt expense as a % of sales or A/R on an annual basis
Define Accounts receivable
An asset recognized to reflect a claim against another party for the receipt of money, goods, or services.
Define Trade Receivables
Current assets arising from credit sales to customers in the normal course of business and due in customary trade terms.
How are accounts receivables presented on the balance sheet?
On the face of the balance sheet, A/R reported NET of any allowance and adjustments. @ Net realizable valueThe amounts of the allowance and adjustments are indicated within the text.
How are Notes Receivables presented on the balance sheet?
Notes receivables are reported at present value without a separate allowance account.
How are Notes recorded when they are classified as Current Assets and Noncurrent Assets?
Current Assets are usually recorded at face amount minus allowances (NRV)Noncurrent Assets are recorded at Present Value of the Expected future cash flows -An difference between the proceeds and the face amount must be recognized as a premium or discount and amortized
How are notes with original maturities of 3 months or less treated?
Treated as case equivalents and accounted for at Net Realizable Value
List the 3 discount types for trade receivables and their definition
1) Trade discounts - adjust gross (list) price for different buyers, quantities, and costs. Net price after the trade discount is the basis for recognition2) Chain-Trade discounts - More than 1 discount is given to a customer. The discounts calculated separately3) Cash Discounts (sales discounts) accelerate cash collection by rewarding customers for early payment.
Define Notes Receivables
A debt evidenced by a two-party writing (a promissory note). It must comply with the law of negotiable instruments. More formal promises to pay than A/R
The steps in discounting are to compute:
1) Total interest receivable on the note (Face amount x stated rate x note term)2) Maturity amount ( Face amount + total interest receivable)3) Accrued interest receivable ( Face amount x stated rate x note term elapsed)4) Bank’s discount (Maturity amount x bank’s discount rate x note term remaining)5) Cash proceeds ( Maturity amount - Bank’s discount)6) Carrying amount of the note (Face amount + accrued interest receivable7) Gain/Loss (Proceeds - Carry amount)
