Financial Act Chpt 8 Notes

Financial Act Chpt 8 Notes - Chapter 8 Receivables...

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Chapter 8 Receivables Receivables: Money that is owed to the company. Listed as an asset on the balance sheet. Can be - considered a current asset (if expected to be collected within one year or less) or a non-current assets (if collection will be later than one year). - Types of Receivables - Accounts receivable - Notes receivable - Other receivables Accounts Receivable: Created by selling goods or services to a customer on credit (a trade receivable). Normally considered a current asset, because expected to be collected in one year or less • Recorded at net realizable value (NRV) = Gross A/R less amount estimated to be uncollectible • Record bad debts each period for proper matching of expenses with revenues Pledging (Assigning) Accounts Receivable: (a secured borrowing transaction): • Company transfers (assigns) Accounts Receivables rights of collection to someone else to obtain a loan. • Assignor usually pays collection costs and keeps risk of any bad debt losses • Assignor still collects on A/R, then pays assignee cash collected each month • On Balance sheet: Still include accounts receivable assigned as part of A/R, and show Loan Payable. Would list details of assignment in notes to the financial statements. Factoring Accounts Receivable: (a sale of the company's receivables): - • Helps company to collect cash sooner by selling rights of A/R to 3 rd party to get cash • Accounts receivable removed from books, normally loss on the sale With recourse: Seller guarantees payment if can't collect A/R, risk of loss is the seller's • Without recourse: Seller does not guarantee payment; risk of loss is the purchaser's Can record a sale if: • Transferred asset has been isolated from the transferor • Transferee has obtained right to pledge or exchange the transferred assets (AIR) or has beneficial interest in transferred assets • Transferor no longer maintains effective control of the transferred assets Estimating Uncollectible Accounts:
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Financial Act Chpt 8 Notes - Chapter 8 Receivables...

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