Accounts Receivable Introduction and Valuation

Question 1

What are the characteristics of Accounts Receivable?

Answer 1

1. ) Related to customer transactions
2. ) Related to the sale of goods to customers
3. ) Typically short term (30 to 90 days)
4. ) Since short term, usually no interest element

Question 2

What is another name for customer accounts receivable?

Answer 2

Trade Receivable

Question 3

What are the characteristics of “Notes Receivable?”

Answer 3

1. ) Non-customer transactions
2. ) Usually related to a longer time frame than A/R
3. ) All notes have an interest element
4. ) Notes are often negotiable, provide more security for seller form and usually can be converted to cash easily

Question 4

How are receivable valued on the Balance Sheet?

Answer 4

At net realizable value - the amount of cash that the entity expects to collect at due date or at maturity. There are several factors that could cause the valuation of a receivable to be less than its face or nominal value

Question 5

What are some factors that affect Receivable Valuation?

Answer 5

1. ) Trade (quantity) discounts
2. ) Cash (Sales) discounts
3. ) Sales returns and allowances
4. ) Non-collectible accounts

Question 6

What are the two methods of accounting for receivables that may be used?

Answer 6

1. ) Gross Method - records receivables at gross invoice price (before cash discount)
2. ) Net Method - Records receivables at net invoice price (after cash discount)

Question 7

What account is a contr to sales?

Answer 7

Sales Discounts

Question 8

What is the main difference between IFRS and U.S. GAAP in relation to Receivables?

Answer 8

IFRS allows recognition if there is a firm sales commitment and certain recognition criteria are met