Intermediate Accounting: Receivables and Inventories Flashcards

Comprehensive flashcards covering account receivables, doubtful accounts, notes receivable, receivable financing, and inventory measurement based on lecture transcripts.

Trade receivables

Claims arising from the sale of merchandise or services in the ordinary course of business, including accounts receivable and notes receivable.

Accounts receivable

Open accounts arising from the sale of goods and services in the ordinary course of business that are not supported by promissory notes; also known as trade debtors.

Nontrade receivables

Claims arising from sources other than the sale of merchandise or services in the ordinary course of business.

IFRS 18

The financial reporting standard titled Presentation and Disclosure in Financial Statements, which governs the classification of current and noncurrent assets.

Customers' credit balances

Credit balances in accounts receivable resulting from overpayments, returns and allowances, and advance payments, classified as current liabilities.

Net realizable value (Accounts Receivable)

The amount of cash expected to be collected or the estimated recoverable amount from customers.

FOB destination

Shipping term meaning ownership of the goods purchased is vested in the buyer only upon receipt thereof at the point of destination.

FOB shipping point

Shipping term meaning ownership of the goods purchased is vested in the buyer upon shipment thereof.

Freight collect

Shipping term indicating that the freight charge on the goods shipped is not yet paid and the carrier will collect it from the buyer.

Freight prepaid

Shipping term indicating that the freight charge on the goods shipped has already been paid by the seller.

Gross method

A method of recording credit sales where the accounts receivable and sales are recorded at the full invoice amount before considering discounts.

Net method

A method of recording credit sales where accounts receivable and sales are recorded at the invoice price minus the cash discount, regardless of whether it is taken.

Allowance method

A method of accounting for bad debts that requires recognition of loss if accounts are doubtful of collection; it conforms with the matching principle.

Direct writeoff method

A method of accounting for bad debts where loss is recognized only when accounts prove to be worthless; it is not permitted under IFRS.

Aging of accounts receivable

A method of estimating doubtful accounts by classifying them into categories based on the time they are past due.

Percentage of sales method

An income statement approach where a rate is multiplied by sales to determine the doubtful accounts expense for the period.

Promissory note

A written contract in which one person, the maker, promises to pay another person, the payee, a definite sum of money.

Dishonored notes

Promissory notes that have matured and have not been paid by the maker.

Amortized cost

The measurement of a note receivable initially minus principal repayment, plus or minus cumulative amortization of any difference, and minus reduction for impairment.

Compounding of interest

A mathematical process in interest-bearing notes where any accrued interest receivable also earns interest.

Receivable financing

The financial capability of an entity to raise money out of its receivables through forms like pledging, assignment, or factoring.

Pledge of accounts receivable

A financing arrangement where accounts receivable are used as collateral security for a loan from a lending institution.

Assignment of accounts receivable

A formal type of pledging where a borrower (assignor) transfers rights in specific accounts receivable to a lender (assignee) as security for a loan.

Factoring

The sale of accounts receivable usually on a without recourse, notification basis to a bank or finance entity.

Factor's holdback

A predetermined amount withheld by a factor as protection against customer sales returns and allowances, classified as a current asset.

Inventories

Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials to be consumed.

Trading concern

An entity that buys and sells goods in the same form as they were purchased.

Manufacturing concern

An entity that buys goods and converts them into another form before they are made available for sale.

Consignment

A marketing method where the owner (consignor) transfers physical possession to an agent (consignee) who sells the goods on the owner's behalf.

FAS (Free Alongside)

A maritime term where the seller bears all risk and expenses in delivering goods to the dock next to the shipping vessel.

CIF (Cost, insurance and freight)

A shipping contract where the buyer pays a lump sum that includes the cost of the goods, insurance cost, and freight charge.

Periodic system

An inventory accounting system that requires physical counting at the end of a period to determine the cost of goods sold.

Perpetual system

An inventory accounting system that maintains stock cards to provide a running summary of inventory inflow and outflow.

FIFO (First in, First out)

An inventory cost flow assumption that the goods first purchased are the first ones sold.

Moving average method

The perpetual inventory version of the weighted average method, where a new unit cost is computed after every purchase.

Specific identification

An inventory method where specific costs are attributed to identified items, typically for inventories that are not ordinarily interchangeable.

Net realizable value (Inventories)

The estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated cost of disposal.

LCNRV

The measurement principle under IFRS stating that inventories shall be measured at the lower of cost and net realizable value.

Purchase commitments

Obligations of an entity to acquire certain goods in the future at a fixed price and quantity.

Interest Formula

$$\text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time}$$

Net Realizable Value Formula

$$\text{NRV} = \text{Estimated Selling Price} - \text{Estimated Cost of Completion} - \text{Estimated Cost of Disposal}$$