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9 Cards in this Set
- Front
- Back
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Types of Receivables
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Accounts Receivables
Notes Receivables Other Receivables (Amounts due from individuals and other companies that are expected to be collected in cash. |
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Accounts Receivables
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Amounts owed by customers that result from the sale of goods and services
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Notes Receivables
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Claims for which formal instruments of credit are issued as proof of debt
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Other Receivables
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“Nontrade” (interest, loans to officers, advances to employees, and income taxes).
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Promissory Note
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Written promise to pay a specified amount of money on demand or at a definite time. Notes receivable give the holder a stronger legal claim to assets than accounts receivable and thus easily transferable to third party (sold) if needed.
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To the Payee
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The Promissory note is a note receivable.
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To the Maker
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The Promissory note is a note payable.
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Formula for Interest
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Interest = Face Value x Annual Interest Rate x Time
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Lower-of-Cost-or-Market
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Regardless of inventory method used, when the value of inventory is lower than its cost, the inventory should be written down to its market value by valuing the inventory at the lower-of-cost-or-market (LCM) in the period in which the price decline occurs.
Exception to the historical cost principle. The purpose of LCM is to recognize an expense (COGS) in the period the inventory “loses” its value (instead of waiting to increase COGS for the full amount when the inventory is sold). LCM is required by GAAP & is an example of conservatism. Under LCM Basis, market is defined as current replacement cost. For Merchandising Company, it is cost of purchasing the same goods at the present time from the usual suppliers in the usual quantities. |
