Far - Chp 2- Receivables

Front 1

Accounts Receivable is used for

Back 1

claims arising from the sale of goods or in the performance of services (normal operations).

Front 2

A/R should be reported at

Back 2

Net Realizable Value-the net amount expected to be received in cash.

Front 3

Discounts for prompt payment (net and gross)

Back 3

Sales & Rec's should be recorded net of any discounts.
If A/R are recorded at gross, @ YE they should be deducted from A/R.

Front 4

Trade & Quantity Discounts

Back 4

Actual consideration agreed upon should be the amount for the transaction to discounted.

Front 5

Sales Rtns & Allowances

Back 5

Future rtns & allowances associated with A/R outstanding at the B/S date should be anticipated. Credit-allowance acct for est'd amt. Dr - special inventory acct to reflect NRV of rtn'd items & the balance is charged to the sales rtn expense acct (a plug amt).

Front 6

Methods of Estimating Uncollectible Receivables (2 of them)

Back 6

(1) Percentage of Sales Method
(2) Percentage-of-Outstanding - Receivables Method

Front 7

%-of-Sales Method is

Back 7

when bad debt expense is calculated as a % of credit sales for the period. Amt est'd is charged to Bad Debt Expense, credited to Allowance for Uncollectible Accounts. Any previous balance in the allowance acct is NOT considered in determining the amount of bad debt expense recognized for the period. I/S oriented.

Front 8

%-of-O/S-Receivables Method is

Back 8

based on the balance in the trade receivables accounts and attempts to value the A/R at the their future collectible amts.
The % is applied to the ending balance of thegross accuonts receivable to obtain the desired ending balance of the allowance accts.
Bad debt expense = diff between the existing balance in the allowance acct & the desired ending balance.
B/S oriented.

Front 9

Recording of Bad Debt Expense

Back 9

Dr-Bad debt expense & Cr - Allow acct. The entry decreases NI, net A/R, CA's & working capital.

Front 10

Recording of Accounts Written Off

Back 10

Dr-Allow acct & Cr - A/R. The entry has not effect on NI, net A/R, CA's & working capital.

Front 11

Recording subsequent collections

Back 11

Cr-A/R, Dr-Allow acct and then Dr - Cash & Dr-A/R

Front 12

Using the direct write-off method, during an accounting period wherein cash collections from customers = sales adjusted for addition or deductions for accounts written off and for an increase in A/R balance-what happens to these 2?

Back 12

There will be a deduction to both accounts written-off and to an increase in the A/R balance.

Front 13

2 Types of Notes Receivable

Back 13

(1) Interest bearing - the maker of the note pays an interest amt in addition to the FV of the note.
(2) Noninterest bearing - the interest is included in the face amount.
Recorded at PV.

Front 14

Interest Bearing Notes

Back 14

Call for the prevailing rate of interest at the time of issuance, the PV of the note = the FV amt of the note.

Front 15

Notes receivable exchanged solely for cash and no other rights/privileges - how is it treated?

Back 15

It is presumed to have a PV at issuance = to the cash proceeds rec'd.

Front 16

Notes receivable exchanged for cash and a promise to provide merchandise at a discount from mkt price.

Back 16

The issuer records the note at PV. Diff btwn FMV and cash pmts is recognized as interest revenue over the contract life and is recorded as part of the cost of the related merchandise.

Front 17

Noninterest bearing notes/others with unrealistic interest rates are reported/treated as?

Back 17

(a) The receivable must be reported at its PV or the FMV of the property, good or service exchanged, whichever is more clearly determinable.
(b) If material, the resultant discount or premium should be amortized over the life of the note by the use of the interest method. This method calc by applying the prevailing rate at the time of issuance to the carrying amount of the note at the beginning of the period.

Front 18

Loan origination fees on notes receivable

Back 18

These are deferred and amortized over the life of the loan as an adjustment to interest income. Use interest method to amortize.

Front 19

When is a note at a discount and when is it a premium?

Back 19

(1) discount - the stated interest rate is < the mkt rate
(2) premium - the stated rate > the mkt rate

Front 20

How to determine the PV of the note at acquisition.

Back 20

PV = the FV of the note x PV factor (at the mkt rate), + (Interest pmt = FV x stated rate) x PV factor (mkt rate)

Front 21

Amortization table calc (5 columns)

Back 21

Column 1 - is the date column and first row under column 5 is the PV of the note at acquisition.
Column 2 is the interest income column (Mkt rate x PV bal in Col #5).
Column 3 is the interest pmt (stated rate x FV of note).
Column 4 Disc Amortization = col # 2 minus col #3.
Col #5 = PV bal + col #4.

Front 22

JE for the interest on a discounted N/R

Back 22

Dr Cash for the int pmt amt
Dr Discount on N/R for the disc amortization
CR Interest income for the 2 above

Front 23

Discounting a N/R usually means

Back 23

refers to the sale of a note to a third party, usually a bank or other financial institution. These sales are w/recourse--means that upon default of the debtor, the seller of the note becomes liable for its maturity value.

Front 24

Assignment of A/R

Back 24

represents a formal arrangement whereby the rights to A/R are assigned to a financial institution in exchange for cash. Transfer from A/R to A/R Assigned and a liability to the financial institution is recorded.