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Flashcards in Current Assets & Liabilities Deck (21)
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1

How is Days to Collect A/R calculated?

Average A/R / Average Sales per Day

2

How are gain contingencies recorded?

They are NOT accrued due to Conservatism

3

When are loss contingencies recorded?

If Probable - they are accrued (if estimable) and disclosed

If Reasonably Possible - they are disclosed

If Remote - don't accrue or disclose

4

JE for recording sales/receivables at net

Record sales at net
Credit Sales discounts not taken (if not taken) when payment is received

Cash (gross)
A/R (net/reverse)
Sales discount not taken

If payment received within the discount period, DO NOT record any sales discount not taken.

5

JE for recording sales/receivables at gross

1. Record sales at gross
If allowance method is used: need 2nd entry for the sales discount

Sales Discount
Allowance for Sales Discount

2. Debit Sales Discount upon receipt of payment

Cash
Sales Discount
A/R (gross)

6

Bad Debts JE

1. Direct Write Off

Bad Debts
A/R

2. Allowance method

Bad Debts
Allowance for BD

Allowance for B D
A/R

7

What is transfers and servicing of financial assets?

is the transfer of an entire financial asset, a group of financial assets, or a participating interest in an entire financial asset.

8

Transfers and servicing of financial assets include:

securitizations
factoring
transfers of receivables with recourse
repurchase agreements
loan participations
banker's acceptances

9

It is the purchasing and selling securities that are collateralized by a pool of assets such as group of receivables

Securitizations

10

It is the selling of receivables at a discount to obtain immediate cash

Factoring

11

An agreement to sell an asset to a lender and later repurchase the asset; using the asset as collateral for a loan

Repurchase agreements

12

A group of financial institutions purchases a share of financial instruments

Loan participations

13

An order from a customer of a bank for the payment of a specified sum of money (post dated check) that maybe bought and sold

Banker's acceptance

14

Criteria for a financial asset transfer to be accounted for as a sale:

Transferor surrenders control and
*assets are isolated/beyond reach of the transferor and creditors even in bankruptcy or receivership
*no unreasonable constraints/conditions upon transfer
*transferor does not maintain control over assets or a third beneficial interest in the asset

15

Accounting for liabilities from litigation

If probable and estimable:

Loss from litigation
Liability from litigation
#most conservative amount

Upon settlement:

Liability from litigation
Cash
Recovery of loss from litigation
# if actual settlement is < recorded liability

16

Criteria for accruing compensated absences
JE

1. services already rendered
2. right that accumulates or vests
3. payment is probable
4. can be reasonably estimated

Salaries and wages
Accrued liability for compensated absences

17

Life insurance policy - JE

Monthly/yearly payment
transactions affecting the cash surrender value account are premiums paid and dividends received
Life insurance expense should be netted by the
cash discount received

Premiums paid - addition to CSV of policy
/Dividends received - deduction from the premium
Yearly payment constitutes premium expense and contribution to the cash surrender value of the policy


Premium of life insurance expense
Cash surrender value of LI
Cash

Cash
Premium of life insurance expense

18

GIFT CERTIFICATE ACCOUNTING

Cash
Deferred revenue

Deferred Revenue
Revenue

19

FRANCHISE ACCOUNTING

IF FUTURE SERVICES ARE REQUIRED FOR THE FUTURE PAYMENTS:

Cash 30,000
Notes Receivable 45,000
Discount on NR 9,000
Franchise revenue 30,000 cash received
Unearned franchise fees 36,000 (PV of
installments)

IF NO FUTURE SERVICES ARE REQUIRED, CREDIT 66,000 TO REVENUE

20

Be EXTRA CAREFUL IN computing the Adjusting entry amount for Allowance for Doubtfl Accounts in AR

if it is based on % of AR, this amount is the new target. Compute the amount to be adjusted.

21

Periodic franchise payments based on revenues - how are they recognized?

expensed as incurred