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Flashcards in Receivables Deck (25)
1

define accounts receivable

accounts receivable arise from the sale of goods or the performance of services that have not been paid.

If they are not related to the normal operations such as amounts due from officers, employees or stockholders, then they are reported separately from trade accounts receivable (ASC 310)

2

what are receivables valued at on the balance sheet

net realizable value (NRV)

3

for bad debt is the direct write-off or the allowance method GAAP

the allowance method is GAAP

4

what are the 2 acceptable methods of bad debt expense

income statement approach (% of credit sales)
balance sheet approach (% of receivables method)

5

which bad debt method better applies the matching principle, income statement approach or balance sheet approach

income statement approach

6

which bad debt method better applies the asset valuation principle, income statement approach or balance sheet approach

balance sheet approach

7

what are the 4 basic techniques for generating immediate cash from a receivable

1. pledging
2. assigning
3. factoring: sale without recourse
4. factoring: sale with recourse

8

define pledging of receivables

the client borrows the necessary cash and "pledges" (offers) the receivable to the lender as collateral to secure the loan. When this occurs it must be adequately disclosed in a footnote in the financial statements

9

define assigning of receivables

the client borrows the necessary cash, and agrees to use the proceeds from the receivable to repay the lender. Sometimes, the customer is notified to make payment directly to the lender instead of the client

10

define receivable factoring: sale without recourse

the client sells the receivable to anther party (a factor), with the buyer assuming the risk that the receivable may not be collectible

11

define receivable factoring: sale with recourse

the client sells the receivable to another party, with the buyer retaining the right to demand the client make good on the receivable if the customer does not pay as promised

12

what 3 criteria must be met for a transfer of assets to be considered a sale and not a borrowing/assignment

1. Assets are isolated and beyond the reach of the transferor and its creditors
2. Transferee can pledge/exchange assets without unreasonable constraints or conditions
3. The transferor does not maintain effective control over the transferred financial assets or third-party beneficial interest (may not have a repurchase or redemption agreement)

13

In the case of assigning or pledging a receivable, what accounts are debited & credited

debit Cash
credit Note payable

14

In the case of selling a receivable, what accounts are debited & credited

debit cash
credit A/R
credit gain or debit loss

15

define discounting of receivable

the sale or assignment of an interest bearing note

16

what is the difference between factoring and discounting

factoring is the sale of short-term accounts receivable. Discounting is the sale or assignment of long term notes receivable

17

define servicing

collecting payments, late fees, foreclosure, collections, etc. This can be done contractually on behalf of another company

18

what are the 2 methods that servicing contract assets/liabilities can be measured

1. amortization method (initially recorded at fair value)
2. fair value method

19

define securitization

the transformation of financial assets into securities (i.e. asset backed securities including mortgages, credit cards, collateralized debt obligations, etc)

20

what are the 3 types of payment methods in the securitization mechanism

1. pay-through
2. pass-through
3. revolving-period

21

what is the accounting standard codification (ASC) for impairments on receivables

ASC 360

22

is short term A/R (due within 1 year or business cycle) carried at face value or present value

face value

23

is long term A/R carried at face value or present value

present value

24

IFRS - what is the term used for the recuction accounts receivable for possible loss

provision (called allowance under GAAP)

25

if a receivable has been previously written off, but then money is later received, what accounts are hit for the recovery

debit cash, credit allowance for doubtful accounts (increase)