-
Classfication:
Restricted cash
Identify restricted cash and classify as current and noncurrent assets
-
Classification:
petty cash and change funds
Cash
-
Classification:
Short-term paper
Cash equivalents IF maturity < 3 months
Temp investments IF maturity 3-12 months
-
Classification:
Post-dated checks and IOU's
Receivables
-
Classification:
Postage on hand
Prepaid expenses or office supplies
-
Classification:
Travel advances
Receivables
collected from employees or deducted from their salary
-
Classification:
Bank overdrafts
Current liability
-
Classification:
Compensating balances
Reduce cash IF right of offset exists
Otherwise classify as current or noncurrent asset and disclose arrangement in the notes
-
Difference between current and noncurrent receivables
Current receivables are expected to be collected w/i 1 year. Noncurrent are long-term receivables.
-
Trade receivables
Accounts (oral promise) and notes (written promise) receivable customers owe a company for goods bought or services rendered.
-
Nontrade receivables
- Can arise from a variety of transactions:
- 1- advances to officers and employees
- 2- advances to subsidiaries
- 3- deposits paid to cover potential damage/loss
- 4- deposits paid to guarantee performance or pmt
- 5- dividends and interest receivable
- 6- claims against insurance companies, defendants under suit, gov't bodies for tax refunds, common carriers for damages or lost goods, creditors, customers for returnable items
-
Direct write-off method
NOT GAAP
When a specific acct is definitely uncollectible, A/R is credited and Bad Debt expense is debited
-
Allowance method
GAAP
An estimate is made of expected uncollectible accts and this is credited to Allowance and debited to Bad Debts Expense
This method more closely matches expenses and revenues and properly represents carrying value of A/R.
-
Percentage-of-sales approach
Income Statement approach
A percentage of sales is used to estimate Allowance acct. The resulting estimate is the amount of the journal entry
-
Percentage-of-receivables
Balance Sheet approach
A percentage of receivables is used to estimate the ENDING BALANCE in the allowance account
-
Writing off a bad debt using the allowance method
- Debit Allowance for Doubtful Acct's
- Credit A/R
If the acct is subsequently collected, reverse the previous entry and then debit cash and credit A/R
-
Sale with recourse
The seller guarantees payment to the purchaser in the event the debtor fails to pay
The seller has a continuing involvement with the receivables
The financial components approach is used
-
Sale without Recourse
The purchaser assumes risk of collectibility and absorbs any credit losses. It is an outright sale of the receivables both in form and substance.
-
Due from factor account
reported as a receivable.
Accounts for the proceeds retained by the factor to cover probable sales discounts, sales returns and sales allowances.
-
Journal entry for company that sells receivables WITHOUT RECOURSE to a factor where xx amt is retained in case of probable adjustments
- Cash -------
- Due from Factor xx
- Loss on Sale of Rec. -------
- Acct's Receivable --------
-
Journal entry for company that buys receivables WITHOUT RECOURSE from a company where xx amt is retained in case of probable adjustments
A/R ----------
- Due from factor xx
- Financing revenue ----- (equal to loss on sale)
- Cash -----
-
Journal entry for company that sells receivables WITH RECOURSE to a factor where xx is that amt retained in case of prob adjustments and yy is the amt of the recourse obligation
- Cash -------
- Due from factor -----
- Loss on sale ------
- A/R -----
- Recourse liability yyyy
-
Journal entry for company that purchases receivables WITH RECOURSE from a company where xx is the amt retained in case of prob adjustments and yy is the amt of the recourse obligation
A/R -------
- Cash -------
- Financing revenue (loss - yy)
- Due to company xxx
-
The 3 conditions necessary for a company to record a sale of receivables
- 1- The transferred asset is isolated from the transferor
- 2- The transferees have obtained the right to pledge or exchange transferred assets
- 3- The transferor does not maintain effective control over the tranferred assets
-
Presentation of receivables on the balance sheet
- Cash and cash equivalents xxxx
- Accounts and notes receivable xxxx
- Less: Allowance for doubtful acct's xxxx
- Advances to subsidiaries
- Federal income taxes refundable
- Dividends and interest receivable
- Other receivables and claims
- Noncurrent receivables
- Notes receivable from officers and key employees
- Claims receivable
|
|
