FAR 3_02

  1. Describe the gross method of recording a cash or sales discount.
    • The journal entry is made for the full amount without including the discount.
    • IF the customer USES the discount an adjustment is made.
  2. Describe the net method of recording a cash or sales discount.
    • The journal entry is made for the (sales – discount) net amount.
    • IF the customer does NOT use the discount, an adjustment is made.
  3. True / False: Trade discounts are added together and taken off the base amount of sale.
    • False
    • Trade discounts are applied sequentially
  4. When can a sales returns and discounts allowance be utilized? What is the accounting if an allowance isn’t used?
    • If past experience shows that a material percentage of receivables are returned, an allowance for returns should be established.
    • Otherwise, returns are only adjusted when it actually occurs
  5. True / False: The direct write-off method is GAAP accounting and used for tax calculations.
    • False
    • It is not GAAP
    • But it is the accounting used for tax calculations
  6. How is the percentage of sales method for the allowance for doubtful accounts calculated? What is another name for this method?
    • A percentage of the sales is calculated and ADDED to the allowance account
    • Income Statement Approach
  7. How is the percentage of accounts receivable for the allowance for doubtful accounts calculated? What is another name for this method?
    • A percentage of year-end A/R is calculated. The allowance for doubtful accounts is then adjusted such that this amount becomes the ending balance of the allowance for doubtful accounts.
    • Balance Statement Approach
  8. How is the aging of accounts receivable for the allowance for doubtful accounts calculated? What is another name for this method?
    • As accounts become more past due (60 days vs 90 days), the percentage of these accounts become less collectable. The entity allots a percentage to each level of past-due account, then sum the amounts. The allowance for doubtful accounts is then adjusted such that this amount becomes the ending balance of the allowance for doubtful accounts.
    • Balance Sheet Approach
  9. What is the journal entry for an account that becomes uncollectible?
    • [DR] Allowance for Doubtful Accounts
    •    [CR] A/R
  10. What are the journal entries for an account that was previously written off, but has now become collectible?
    • [DR] A/R
    •    [CR] Allowance for Doubtful Accounts
    • ---
    • [DR] Cash
    •    [CR] A/R
  11. Describe Pledging of A/R? How are the accounts adjusted?
    Using A/R as collateral for a loan. No adjustments are made to the accounts.
  12. Describe Factoring of A/R? What is the difference between with or without recourse?
    • Selling the A/R to a third party.
    • With Recourse: when the buyer can return for more A/R if some of the original A/R becomes uncollectible.
    • Without Recourse: when the buyer assumes all risk and cannot return to the seller if some of the accounts become uncollectible.
  13. When are factored accounts with recourse considered sold vs a borrowing?
    • If the transfer includes:
    • The seller’s obligation for uncollectible accounts can be reasonably estimated
    • The transferor surrenders control of the future economic benefits of the A/R to the buyer.
    • The transferor cannot be required to repurchase the A/R, but may be required to replace the uncollectible A/R with similar receivables.
    • THEN it is a sale, ELSE it is a borrowing.
  14. What is “Discounting of N/R”?
    Selling the notes receivable for quick cash.
  15. How is the discounting of a N/R calculated?
    • Calculate the maturity value of the N/R: Face value + interest that will be earned
    • Calculate the bank discount on the payoff at maturity: Bank discount rate x days remaining until maturity
    • Calculate the amount paid by the bank: Payoff at maturity less bank discount
    • Calculate the interest to be earned by the entity: Amount paid by the bank - face value of the note
Author
BethM
ID
337828
Card Set
FAR 3_02
Description
Becker Review 2018
Updated