M2 - Trade Receivables Flashcards
What method of estimating uncollectible accounts emphasizes asset valuation rather than income measurement is the allowance method based on?
Aging the Receivables, This focuses on the balance sheet and emphasizes the valuation of assets. It results in a good matching of revenue and expense.
True of False: Under the allowance method of recognizing uncollectible accounts, the entry to write-off an uncollectible account has not effect on net income:
True: The entry to write-off an uncollectible account under the allowance method has no effect on net income.
Debit: Allowance for Uncollectible Accounts
Credit: Accounts Receivable
Does factoring receivables without recourse transfer the risk of uncollectible accounts to the buyer or seller?
To the buyer
Under the allowance method for recognizing uncollectible accounts, the entry to record the write-off of a specific uncollectible account affects net income and or working capital in what way? Increases, Decreases or doesn’t affect them?
Doesn’t affect both. Under the direct method they are both reduced.
Allowance Method
DR: Allowance for Uncollectible AR
CR: Accounts Receivable
Direct Method
DR: Bad debt expense
CR: Accounts Receivable
What does 2/10 n/30 mean?
This offers the purchaser a discount of 2 percent of the sales price if the payment is made within 10 days. If the discount is not taken, the entire (gross) amount is due in 30 days.
Discounting Note Receivable means
Get Cash Now
Face Value = Principal
Maturity Value = Principal + Interest
This is note receivable terms
Journal Entry For Discounting Notes Receivable with recourse
DR: Cash
CR: Note Receivable DISCOUNTED (contra asset)
Journal Entry For Discounting Notes Receivable without recourse
DR: Cash Loss
CR: Note Receivable
(Risk of loss on buyer)
Which method of recording uncollectible accounts expense is consistent with accrual accounting? Allowance Method (Yes or No)
Direct Write-Off (Yes or No)
Allowance - Yes
Direct - No
