MUHASEBE I - Deneme Sınavı - 3

Factoring is the business of purchasing receivables from companies upon a fee for the services performed to manage and collect receivables. The correct answer is D.

Receivable is an accounting term associated with the amounts that are owed to the business by other parties, mainly its customers. These are basically the claims that are likely to be acquired in future. These claims stem from selling goods or services on credit. Receivables can also arise when someone lends money to another person. Let’s assume that your friend needs 200 TL cash to buy something. He borrows 200 TL on June 1st and promises to pay it back at the end of the month. You give up cash and, instead, agree with a 200 TL receivable from your friend. The receivable is an asset, but it is not as liquid as cash. A is the right answer.

Generally, receivables are classified into three main categories: (1) accounts receivables, (2) notes receivables, and (3) other receivables. Receivables can be also classified as current (short-term) and non-current (long-term) receivables with respect to their maturity structures. Receivables that are expected to be collected in less than one or exactly in one year (or operating period) are presented as current asset in the balance sheet. Receivables that are expected to be collected in more than one year (or longer than the operating period) are presented as non-current asset in the balance sheet. B is the right answer.

Recognizing accounts receivable is comparatively simple and straight. Accounts receivable arises when a company sells goods or services to its customer on credit in its normal course of business. Normally a 30 to 60-day time period is entitled to the debtors for payment. D is the right answer.

Return facility is often part of a company’s marketing program that enables it to maintain competitiveness. It is basically a contra sales account that records (1) any goods returned by the customers and (2) any allowance given to a customer because the company delivered defective or improper goods. As a result, this will reduce the company’s account receivable. E is the right answer.

Trade discount is the reduction in the catalogue price or listed price of the goods. Trade discounts reduce the final sales price and are not affected by the date of payment. Hence, it is important to note that trade discounts are not recorded and therefore they are not reflected in the books of accounting for both buyer and seller. Only the price is recorded after a net of the trade discounts. D is the right answer.

Under allowence method, the company should make necessary adjustments at the end of its accounting year for the amount of losses it predicts as a result of making sales on credit to its customers. This allowance method has three basic yet important features:
1. The uncollectible amounts are anticipated and the expense for the uncollectible account is matched against sales in the same period in which sales were made.
2. Through an adjusting entry at the last of accounting year, forecasted uncollectible receivables are credited to Allowance for Doubtful Debts Account and debited to Bad Debts Expense account.
3. Recognized uncollectible receivables are debited to Allowance for Doubtful Debts Account and credited to Account Receivable account at the time when specific amount is written. A is the right answer

One important issue regarding allowances is how to record the written-off uncollectible account receivables. Whenever a company becomes sure that a particular customer will not be able to repay and hence that account receivable would be uncollectible, then that particular account receivable will no longer be categorized as an asset, so it has to be written off from the books. This write-off means to deduct the receivables balance of that specific customer’s account to nil. The company credit Account Receivable and making an offsetting debit to Allowance for Doubtful Debts account. C is the right answer.

Percentage of receivable basis is a percentage relationship between amount of account receivables and estimated losses from uncollectible accounts.  D is the right answer.

The other way in which uncollectible receivables can be calculated is through Direct Write-off Method, which is mainly used by relatively small and private companies. Under this method, a company does not estimate bad debts losses and does not use allowance account for the expenses based on estimates. Instead, when a specific receivable is considered to be uncollectible or worthless, the loss amount is charged directly to the uncollectible account expense. E is the right answer.
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The most practiced method to sell receivables is the sale to a factor, also called as factoring. Factoring is the business of purchasing receivables from companies upon a fee for the services performed to manage and collect receivables. A factor is generally a bank or a finance company that purchases receivables from companies for a fee and then it collects payments directly from these customer receivables at their prescribed time. Traditionally, factoring was associated with home furnishing, footwear, textile, and furniture industries. B is the right answer

Trade receivables are account and notes receivables from sales transactions.

Accounts receivable is recognized when a company delivers good or services on credit.

Cash (net) realizable value shows the credit sales price adjusted for returns, discounts, and allowances expected to be collected from customers.

Trade discount is the reduction in the catalogue price or listed price of the goods.

Bad debt expense is an income statement account that shows the losses incurred due to uncollectible receivables.

Aging of accounts receivable is the analysis of customer balances with respect to the length of time they have not been paid.

Factoring is the business of purchasing receivables from companies upon a fee for
the services performed to manage and collect receivables.

Maker is the writer of a note, promises to pay.

Accounts receivables are recognized at their fair value, which comprises of transaction costs associated with the transaction.