Working Capital and Its Components

Question 1

Factoring receivables without recourse is

Answer 1

a sales transaction

Question 2

Factoring without recourse

Answer 2

transfers the risk of uncollectible accounts to the buyer

Question 3

The allowance method is used to match

Answer 3

expenses with revenues and to record the proper carrying amount for accounts receivable.

Question 4

The direct write-off method

Answer 4

does not achieve these objectives of matching revenues with expenses

Question 5

when the allowance method of recognizing uncollectible accounts is used, the entry to record the write-off of a specific account

Answer 5

decreases both accounts receivable and the allowance for uncollectible accounts.

   DR Allowance      xxx
        CR    A/R                        XXX

Question 6

When a company pledges (assigns) receivables in return for a loan, the assigning company will do what with the receivable

Answer 6

will retain title to the receivables and will use the proceeds collected from the receivables to repay the loan.