Chapter 7

Question 1

Sales Discount Forfeited

Answer 1

• net method when you record revenue (with a discount):
  dr. A/R
  cr. Sales Revenue (amount net of discount)
• if your customer doesn;t pay within the discounted period:
  dr. Cash - full amount
  cr. A/R - same amount as above
  cr. Sales Discount Forfeited (the difference)
• Sales Discount Forfeited* - is in a way revenue for me as is money that my customer didn’t get so it’s reported under “other revenue”

Question 2

Collecting on an Account previously written off - direct method

Answer 2

dr. Cash
cr. Uncolectible Amounts Recovered (revenue account!)

Question 3

Nontrade receivables include the following

Answer 3

1. Advances to employees or other officers
2. Receivables from the government (e.g. GST recoverable, income tax receivable)

3.Dividends and interest receivable

4.Amounts owing by insurance companies

Question 4

When you offer a trade discount…

Answer 4

•Trade discounts are generally not recorded; the price charged (net of the discount) is recorded by the seller as a receivable and revenue:

dr. A/R (net amount)
cr. Revenue

Question 5

IFRS - selling/borrowing Note Rec

Answer 5

Transferred contractual rights to receive cash flows

Question 6

ASPE - selling/borrowing Note Rec

Answer 6

Transfer of Control

Question 7

Sale of receivables - Factoring

Answer 7

Factor = Purchaser

• Ownership of receivables transferred to the purchaser (the factor); receivables recorded as an asset in the purchaser’s books
• If sold without recourse, purchaser is fully responsible for collections of the receivables
• Seller records any retained proceeds as “due from factor” (a receivable) which covers possible sales discounts and sales returns and allowances
• Seller records loss on sale of receivables =** the finance charge**