Lecture 4 Flashcards
Factoring Receivables
Factoring receivables without recourse is a sales transaction. Factoring without recourse transfers the risk of uncollectible accounts to the buyer. ASC 310-10-05-6
Factoring receivables is the process by which a company converts its receivables to cash by assigning them to a factor, either with or without recourse.
Pledging Receivables
Pledging receivables is the process of obtaining a loan using the receivables as collateral.
When a company pledges (assigns) receivables in return for a loan, the assigning company (Milton in this example) will retain title to the receivables and will use the proceeds collected from the receivables to repay the loan.
Assigning
Assigning receivables is the process of obtaining a loan by transferring to the lender the debtor’s right to cash collected on receivables.
% of uncollectibles
Determines ending AFDA Balance
Bad debt expense
AFDA
If equity is issued to pay for short term debt
The credit is to long-term liability rather than common stock because Footnote 2 of SFAS No 6, Classification of Short-Term Obligations Expected to Be Refinanced, states “if equity securities have been issued [after the balance sheet date but before the balance sheet is issued], the short-term obligation, although excluded from current liabilities, shall not be included in owners’ equity.”
Aging of receivable
Required uncollectible balance
Depreciation related to deferred tax
depreciation-related deferred tax liability, must be reported as noncurrent liabilities.
Cash and Cash Equivalents
Cash is defined as actual unrestricted cash and cash equivalents are defined as short-term, liquid investments that are so near maturity (original maturity date was within three months of the purchase date) that the risk of changes in the value because of interest rate changes is insignificant.
Quick ratio
Excludes prepaid rent and inventory
factoring
Factoring involves a company converting its receivables into cash by assigning them to a “factor” either with or without recourse. Aloe factored its receivables without recourse, meaning the sale is final and the factor assumes the risk of any losses.
Of the $80,000 factored, 10% was retained by the factor ($80,000 x 10% = $8,000) and another 5% for commission is taken off ($80,000 x 5% = $4,000) to get to cash received of $68,000 ($80,000 - $8,000 - $4,000).
% of AR
required balance. its a percent of Gross AR not NRV AR. only take AR without subtracting AFDA
AFDA and AR
Both are asset accounts remember that. So a write off has zero effect on assets
Advanced payment of taxes
Paying the equivalent of three months of sales taxes on projected retail sales in satisfaction of the licensing requirement that is fully refundable after five years is a noncurrent asset. Because the transaction is expected to result in the realization of cash in the future, the payment is an asset. It is a noncurrent asset because the cash will be realized at a time beyond the normal operating cycle or one year.
Deposits received from customers
Liability
Inventory
FIFO periodic and FIFO perpetual will always result in the same dollar valuation of ending inventory. LIFO or average, perpetual versus periodic will not.
Valuation of inventory GAAP
Under U.S. GAAP, inventory is valued at the lower of cost or market. Market is defined as the median value of the market ceiling(NRV), market floor(NRV-PM), and replacement cost
Valuation if inventory IFRS
Under IFRS, inventory is valued at the lower of cost or net realizable value. Net realizable value is equal to the net selling price less the costs to complete and dispose, which is equivalent to the market ceiling under U.S. GAAP
Dollar value lifo/price index
Ending Inventory at current year cost(including layer_/ EI at base year cost
LIFO Layer
PI*lifo layer at base cost=dollar value lifo
Dollar value lifo
Date Base year cost Current year cost Dollar val lifo
Y1 same same same
Y1 layer
Y1 EI
Y2 Layer
Y2 EI
Consignor
Rule: Consignor must include consigned goods (in the hands of the consignee) in his own inventory, at his cost plus warehousing costs of consignor before goods are transferred to consignee plus shipping costs to consignee.
dollar value lifo
The dollar-value LIFO method adjusts inventory retail prices and ending inventory cost for price-level changes.
Lower of cost or market
Applying the lower of cost or market rule (item by item) separately to “each item” results in the lowest inventory amount.
LIFO Reserve
LIFO reserve is the difference between inventory on the LIFO method versus any other cost method
NRV
NRV=sp-processing cost
Moving average
Usnder the moving-average method, a new weighted average cost is computed after each purchase, and issues are priced at the latest weighted-average cost.
Think about it logically you have a purchase cost so the weighted average will be calculated after it
periodic vs perpetual
With a periodic inventory system, the quantity of inventory is determined only by physical count, usually at least annually. Therefore, units of inventory and the associated costs are counted and valued at the end of the accounting period and the cost of inventory sold and inventory shortages cannot be easily distinguished. With a perpetual inventory system, the inventory record for each item of inventory is updated for each purchase and each sale as they occur. The actual cost of goods sold is determined and recorded with each sale. At year end, inventory per the perpetual records can be compared to actual inventory per a physical count and inventory shortages can be identified.
loss on purchase committment
read carefully probable loss on purchase committment is different than loss on inventory and only includes future
Net income
When thinking invent diont forget to include cogs when calculate net income
Total inventory LCM
If using total inventory for LCM than add two together to figure out LCM
If you are not getting correct number
Read question carefully
