FAR 3.2 - Trade Receivables Flashcards

1
Q

Accounts receivables from purchasers of the company’s goods and services

A

Trade receivables

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2
Q

Accounts receivables from persons other than customers, such as advances to employees, tax refunds, etc.

A

Non-trade receivables

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3
Q

What does “2/10 n/30” discount mean?

A

A 2% discount on sales price If the payment is made within 10 days

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4
Q

This method records a sale without regard to the available discount:

A

Gross method

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5
Q

If payment is received within the discount period under the gross method, what journal entry is posted?

A

The sales discount account (contra-revenue) is debited to reflect the discount

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6
Q

This method records sales and accounts receivable net of the available discount when a sale is made:

A

Net method

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7
Q

If payment is received after the discount period using the net method, what journal entry is made?

A

Aa sales discount not taken account (revenue) must be credited

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8
Q

What are the two methods of recognizing uncollectible accounts receivables? And which is acceptable under GAAP?

A
  1. Direct write off method
  2. Allowance method = acceptably under GAAP
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9
Q

What are the two methods of estimating uncollectible or doubtful accounts under the allowance method?

A
  1. Percentage of accounts receivable at year-end method
  2. Aging of receivables method
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10
Q

This is the process whereby the company uses existing accounts receivable as collateral for a loan:

A

Pledging

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11
Q

The process by which a company can convert its receivables into cash by assigning them to a factor either with or without recourse:

A

Factoring

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12
Q

Factoring ________ recourse means the sale is final and that the assignee (the factor) assumes the risk of any losses on the collections:

A

Without

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13
Q

Accounts receivable are transferred to a different entity, such as a trust or subsidiary in this situation. The entity would then sell securities that are collateralized by the accounts receivable. Investors receive cash as the accounts receivable are paid.

A

Securitization

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14
Q

In a note receivable, what is the face value, maturity value, and present value?

A

Face value = principal
Maturity value = principal + interest
Present value = face value - unearned interest

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