Accounting for Receivables

In: Business and Management

Submitted By alick2000
Words 1210
Pages 5
CHAPTER 9: Accounting for receivables

ANSWERS TO QUESTIONS

1. Accounts receivable are amounts owed by customers on account. They result from the sale of goods and services in the normal course of business operations (i.e. in trade). Notes receivable represent claims that are evidenced by formal instruments of credit.

4. The essential features of the allowance method of accounting for impairment of receivables are: (1) Impaired accounts receivable are estimated and matched against revenue in the same accounting period in which the revenue occurred.

(2) Estimated uncollectables are debited to Bad Debts Expense and credited to Allowance for Impairment through an adjusting entry at the end of each period.

(3) Actual uncollectables are debited to Allowance for Impairment and credited to Accounts Receivable at the time the specific account is written off.

9. From its own credit cards, the Virgil Ltd may realise financing charges from customers who do not pay the balance due within a specified grace period. National credit cards offer the following advantages: (1) The credit card issuer makes the credit card investigation of the customer. (2) The issuer maintains individual customer accounts. (3) The issuer undertakes the collection process and absorbs any losses from uncollectable accounts. (4) The retailer receives cash more quickly from the credit card issuer than it would from individual customers.

10. Advantages of factoring include: (1) Receivables may be sold because they may be the only reasonable source of cash.

(2) Billing and collection are often time-consuming and costly. As a result, it is often easier for a retailer to sell the receivables to another party who has expertise in billing and collection matters.

11. Cash 390 000…...

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