FAR 3.2 - Trade Receivables Flashcards
Accounts receivables from purchasers of the company’s goods and services
Trade receivables
Accounts receivables from persons other than customers, such as advances to employees, tax refunds, etc.
Non-trade receivables
What does “2/10 n/30” discount mean?
A 2% discount on sales price If the payment is made within 10 days
This method records a sale without regard to the available discount:
Gross method
If payment is received within the discount period under the gross method, what journal entry is posted?
The sales discount account (contra-revenue) is debited to reflect the discount
This method records sales and accounts receivable net of the available discount when a sale is made:
Net method
If payment is received after the discount period using the net method, what journal entry is made?
Aa sales discount not taken account (revenue) must be credited
What are the two methods of recognizing uncollectible accounts receivables? And which is acceptable under GAAP?
- Direct write off method
- Allowance method = acceptably under GAAP
What are the two methods of estimating uncollectible or doubtful accounts under the allowance method?
- Percentage of accounts receivable at year-end method
- Aging of receivables method
This is the process whereby the company uses existing accounts receivable as collateral for a loan:
Pledging
The process by which a company can convert its receivables into cash by assigning them to a factor either with or without recourse:
Factoring
Factoring ________ recourse means the sale is final and that the assignee (the factor) assumes the risk of any losses on the collections:
Without
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.
Securitization
In a note receivable, what is the face value, maturity value, and present value?
Face value = principal
Maturity value = principal + interest
Present value = face value - unearned interest