Chapter 7 Flashcards
What is included in cash?
-Restricted cash: petty cash, special payroll, dividend bank accounts
-Compensating balances: minimum cash balance
-Foreign exchange
How do you account for bank overdrafts?
Usually recorded as a current liability
-If cash account and overdraft fee are from the same bank then it can be offset against the cash account
What are the methods of estimating uncollectible accounts?
-Allowance approach: analyzes at the end of every month and estimates, allowance/bad debts expense adjusted to correct balance
-Percentage-of-receivables: allowance is correct at period end because they use past estimates at initial entry
-Percentage-of-sales: estimate bad debts as percentage of current sales
What is the journal entry for and adjustment in the allowance method?
Bad Debts Expense
AFDA
*adjustment+/- balance
What is the journal entry for an adjustment in the allowance method?
What is the journal entry for an adjustment in the allowance method?
Bad Debts Expense
AFDA
*adjustment+/- balance
What is the journal entry for an adjustment in the percentage of sales approach?
BDE
AFDA
*adjustment +/- balance
What is the entry when a specific customer is deemed uncollectible?
AFDA
A/R
What is the entry if a payment is received after it is written off?
A/R
AFDA
Cash
A/R
What is the direct write off method?
Record BDE only when a specific account is determined uncollectible
BDE
A/R
How do you record a non-interest bearing note?
Notes Receivable
Cash
Cash
Notes Receivable
Interest Income
*multiply note amount by implied interest rate and number of months
What are long term notes recognized at?
The present value of long term cash flows
What is factoring?
Purchaser buying receivables for a fee and collects from customer
-Purchaser assumes risk and absorbs loss (WITHOUT RECOURSE)
-Seller credits A/R for face value and records the gain or loss
*WITH RECOURSE the purchaser does not have risk of collection so it is not treated as a sale
What is securitization?
Interest in financial asset is sold to a third party
-seller continues to service the receivables
*IFRS seller must continue to recognize receivables
-disclose
What is appropriate presentation of A/R and N/R according to IFRS?
-Separate current and non-current receivables
-Use allowance account to record impairments
-Reconciliation of allowance account during the period
