Factoring Accounts Receivables Quiz: Identify True Statements

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Questions and Answers

Which of the following statements about receivables is true?

Receivables include all money claims against other people, companies, and organizations. (correct)

Receivables are only related to the sales of goods or services.

Receivables are classified as non-current assets if collection is expected within 12 months.

Receivables are not governed by any accounting standards.

Which of the following is an example of a receivable?

Inventory

Cash

Accounts payable

Dividends receivable (correct)

How are trade receivables classified in the balance sheet?

As current assets (correct)

As non-current assets

As non-current liabilities

As current liabilities

Which of the following statements about VAT is true?

VAT is only charged on final customers Signup and view all the answers

When is VAT payable?

When you sell Signup and view all the answers

How often is VAT reversed to the Government?

Monthly Signup and view all the answers

Which financial statement(s) prompted the need for the expected credit loss (ECL) model?

Balance sheet Signup and view all the answers

What is the purpose of the expected credit loss (ECL) model?

To anticipate and recognize credit losses before they happen Signup and view all the answers

What does the probability of default (PD) express?

The likelihood of a client incurring a credit loss Signup and view all the answers

What is factoring in the context of account receivables?

The transfer of account receivables to another company Signup and view all the answers

Which of the following is true about initial recognition of a receivable?

It is related to the selling of goods and execution of a service Signup and view all the answers

How are trade discounts accounted for in the income statement?

As a reduction of revenue (debit) Signup and view all the answers

What are notes receivable?

Formal, written instruments of credit issued to customers Signup and view all the answers

How are interests on notes receivable recorded?

Interests are accrued in interim periods and recorded in the profit and loss statement Signup and view all the answers

Which of the following is true about notes receivable?

They can be classified as current or non-current depending on the maturity period Signup and view all the answers

What is the maturity value of a note that was issued on 10/03/2020 with a due date 90 days from issuing date and an interest rate of 8%?

$5,099 Signup and view all the answers

When should a company calculate accrued interest for a note receivable if it needs to report its interim financial statement as of 31/03?

On 31/03 when the financial statement is being reported Signup and view all the answers

What is a credit note used for in accounting?

To correct errors in an invoice Signup and view all the answers

According to IFRS 9, what are the three areas of accounting for financial instruments?

Classification and measurement, Impairment, Hedge accounting Signup and view all the answers

What is the purpose of the allowance for bad debts?

To record the estimated amount of uncollectible accounts Signup and view all the answers

How is the bad debt provision estimated based on the aging schedule?

By applying different rates to an aging schedule of account receivables Signup and view all the answers

When is the write-off of account receivables authorized?

When the accounts receivable are not recoverable anymore Signup and view all the answers

Factoring accounts receivables means

selling them and transferring all rights and obligations to the Factor. Signup and view all the answers

What does it mean when factoring is done on a without recourse basis?

The factor company retains all the risk associated with the trade receivable. Signup and view all the answers

What is the purpose of VAT (value added tax)?

To impose a tax on goods based on their value addition. Signup and view all the answers

Who assesses a finance charge and retains a portion of the accounts receivable in a factoring arrangement?

The bank Signup and view all the answers

Study Notes

Receivables

A receivable is an example of an asset that a company expects to receive in the future.
Trade receivables are classified in the balance sheet as current assets.

Value Added Tax (VAT)

VAT is payable when the taxable supply is made.
VAT is reversed to the government on a periodic basis, usually quarterly or monthly.

Expected Credit Loss (ECL) Model

The ECL model was prompted by the need for a more accurate financial statement representation.
The purpose of the ECL model is to estimate the expected credit loss on a financial instrument.
The probability of default (PD) expresses the likelihood of a borrower defaulting on a loan.

Factoring

Factoring is the process of selling receivables to a third party, known as a factor.
Factoring can be done on a with recourse or without recourse basis.
When factoring is done on a without recourse basis, the factor bears the risk of bad debt.

Notes Receivable

Notes receivable are written promises to pay a certain amount of money at a future date.
Interest on notes receivable is recorded as interest income.
Notes receivable are initially recognized at their fair value.
Trade discounts are accounted for in the income statement as a reduction of revenue.
The maturity value of a note is the face value plus accrued interest.
Accrued interest for a note receivable should be calculated at each interim reporting date.

Credit Notes

A credit note is used to reduce the amount owed by a customer.

IFRS 9

IFRS 9 classifies financial instruments into three categories: amortized cost, fair value through profit or loss, and fair value through other comprehensive income.

Allowance for Bad Debts

The purpose of the allowance for bad debts is to estimate the amount of receivables that will not be collected.
The bad debt provision is estimated based on the aging schedule of receivables.
The write-off of account receivables is authorized when it is confirmed that the debt will not be collected.

Further Notes

Factoring accounts receivables means selling the receivables to a third party.
The factor assesses a finance charge and retains a portion of the accounts receivable in a factoring arrangement.
The purpose of VAT is to tax the value added to goods and services at each stage of production and distribution.

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Test your knowledge on factoring accounts receivables with this quiz! Learn about the process of collecting payments, handling uncollectible amounts, and remitting funds to the bank.

Factoring Accounts Receivables

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