Unit 6 - Receivables

Question 1

AR Allowance:

Percentage-of-receivables method

Answer 1

Take AR balance by % amount given in problem - this is method to estimate the allowance

Question 2

Transfer or Receivables & Other Financial Assets

What are the 2 methods to generate cash from AR?

Answer 2

1 - Assignment - Assignment occurs when specifically named accounts receivable are pledged as collateral for a loan. The accounts receivable remain those of the assignor. However, when cash is collected from these accounts receivable, the cash must be remitted to the assignee.

2 - Factoring - Accounts receivable are factored when they are sold outright to a third party. This sale may be with or without recourse.

Question 3

How are receivables that are factored without recourse treated?

Answer 3

When receivables are factored without recourse, the transaction is treated as a sale and the buyer accepts the risk of collectibility. The seller bears no responsibility for credit losses. A sale without recourse is not a loan. In a sale without recourse, the buyer assumes the risk of uncollectible accounts.

Question 4

Notes Receivable:

Accrued interest receivable

Answer 4

is always equal to the face amount times the nominal rate for the period of the accrual.