Chapter 8: Reporting + Analyzing Receivables

These flashcards cover key concepts from Chapter 8 regarding reporting and analyzing receivables, including factors, credit card sales, accounting methods, and performance ratios.

What is a factor in the context of receivables?

A finance company or bank that buys receivables directly from businesses and collects the payments.

How much commission does a factor typically charge when purchasing receivables?

Often between 1-3% of the amount of receivables purchased.

Who are the three parties involved in credit card sales?

The Customer, Credit Card Issuer/Bank, and Retailer/Seller.

What are the entries required for Kenzie's Restaurant upon accepting a Visa card with a service fee?

Cash increases by $240, Service Charge Expense increases by $10, and Accounts Receivable increases by $250.

What does Bad Debt Expense represent?

Uncollectible expense or provision for uncollectibles, recognized as an operating expense.

What is the Allowance for Doubtful Accounts (ADA)?

A contra-asset account that reduces Accounts Receivable and represents the estimated uncollectible accounts.

Describe the Direct Write-Off Method. Why is it not allowed under U.S. GAAP?

It involves writing off bad debts as they are identified, but it does not match expenses with the revenue in the right period.

What method should companies follow for estimating uncollectible accounts?

The Allowance Method, which estimates uncollectible accounts at the end of each period.

What happens when a company performs legal services on account?

Accounts Receivable increases by the amount performed, and Service Revenue increases by the same amount.

What is the formula to calculate the Net Realizable Value (NRV) of Accounts Receivable?

A/R minus Allowance for Doubtful Accounts.

How is the Receivables Turnover Ratio calculated?

Net Credit Sales divided by Average Accounts Receivable.

What does a lower Receivables Turnover Ratio indicate?

It generally indicates that it takes longer to collect receivables.

What were FedEx's Accounts Receivable Turnover Ratio and Average Collection Period for 2025?

Turnover Ratio was 9.16 times and the Average Collection Period was approximately 40 days.