Trade Receivables (F3:M2)

Question 1

what is NRV of AR?

Answer 1

AR less allowance for doubtful accounts, sales discounts, and sales returns and allowances

Question 2

what are the entries to account for sales discount (gross method)?

Answer 2

at date of sale:
AR (d)
Sales (c)

if payment is received within discount period:
Cash (d)
Sales discount taken (d)
AR (c)

if payment is not received within discount period:
Cash (d)
AR (c)

Question 3

what are the entries to account for sales discount (net method)?

Answer 3

at date of sale:
AR (d)
Sales (c)

if payment is received within discount period:
Cash (d)
AR (c)

if payment is not received within discount period:
Cash (d)
AR (c)
Sales discount not taken (c)

Question 4

under all 3 allowance methods for estimating uncollectible AR, what is the journal entry to establish the allowance account, write-off, and subsequent collection of AR written off?

Answer 4

Bad debt expense (d)
Allowance for doubtful accounts (c)

Allowance for doubtful accounts (d)
AR (c)

AR (d)
Allowance for doubtful accounts (c)
Cash (d)
AR (c)

Question 5

what does pledging (assigning) a receivable involve?

how about factoring?

Answer 5

AR are used as collateral for a loan
requires note disclosure; AR account is not adjusted!!

company converts its receivables into cash by assigning them to a factor

Question 6

what is factoring without recourse and what are the journal entries?

Answer 6

sale is final and the factor (assignee) assumes risk of loss on collections

Cash (d
Due from factor (factor’s margin) (d
Loss on sale of receivable (d
AR (c

“Due from factor” protects factor. If returns, discounts, and allowances are less than the retained amount, the balance will be returned to seller of AR

Question 7

what is factoring with recourse?

Answer 7

the factor has an option to re-sell any uncollectible receivables back to seller

Question 8

under the allowance method, what impact does a write-off of AR have on assets?

Answer 8

no impact