Receivables Flashcards
(39 cards)
Does IFRS permit recognition of accounts receivable when there is a firm sales commitment?
In some instances when the recognition criteria have been met.
What factors affect receivable valuation?
- Trade discounts
- Sales discounts
- Sales returns and allowances
- Uncollectible accounts
List the characteristics of accounts receivables.
- Typically related to customer contracts
- Short time frame
- Typically no interest element
What is the measurement attribute of accounts receivable?
Net realizable value.
List the characteristics of notes receivable.
- Typically non-customer transactions
- Longer time frame
- Have an interest element
How are receivables accounted for using the gross method?
Records receivables at gross invoice price (before cash discount).
What other name is used for customer accounts receivable?
Trade Receivable
List the two methods of accounting for accounts receivable.
- Gross
- Net
Define “contra to sales.”
Sales discounts.
Are notes receivable typically related to customer transactions?
No, they are not typically related.
What is the preferred method of accounting for uncollectible accounts receivable?
Allowance method.
Which method of accounting for uncollectible accounts receivable is required if uncollectible accounts are probable and estimable?
The Allowance method.
Describe the allowance method of accounting for bad debts.
Determine the amount uncollectible and provide an allowance to measure accounts receivable at net realizable value.
Describe the direct write-off method for bad debts.
Direct write-off records bad debts expense only when a specific accounts receivable is considered uncollectible and is written off. Direct write-off method is rarely used.
Describe the balance sheet approach for calculating an allowance balance.
Applies a percentage to ending accounts receivable.
What purpose does analyzing ending accounts receivable serve?
The determination of the needed or desired balance in the allowance account.
Describe the income statement approach for bad debts.
Estimates bad debts as a percentage of credit sales.
Define “market rate.”
Interest rate used to determine the present value of a note receivable.
How is the present value in a non-cash transaction determined?
The fair market value of the non-cash asset or of the note receivable, whichever is more readily determinable.
How is the present value in a cash transaction determined?
The amount of cash that exchanged hands.
At what value should a note receivable be recorded?
The present value of all future cash flows.
What doe we call the (1) maker and (2) holder of a note?
(1) Maker is the buyer or borrower
(2) The holder is the seller or lender
Describe the difference between an interest-bearing and a non-interest-bearing note receivable?
Interest-bearing: the amount of cash to be collected from an interest-bearing note is the face value of the note plus interest;
Non-interest-bearing: the face amount of the note includes principal and interest that will be collected at a maturity date.
What are the three conditions of a sale?
(1) Transferred assets have been isolated from the transferor, even in bankruptcy;
(2) the transferee is free to pledge or exchange the assets;
(3) the transferor does not maintain effective control over the transferred assets through either an agreement that allows and requires the transferor to repurchase the assets or one which requires the transferor to return specific assets.
