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Which type of costs are excluded from the cost of inventories?
Which type of costs are excluded from the cost of inventories?
What is included in the cost of inventories for a service provider?
What is included in the cost of inventories for a service provider?
Which of the following is true regarding storage costs?
Which of the following is true regarding storage costs?
Which of the following costs would NOT be included in inventories?
Which of the following costs would NOT be included in inventories?
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How are costs associated with sales and general administrative personnel treated?
How are costs associated with sales and general administrative personnel treated?
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What characterizes assignment as opposed to pledging of accounts receivable?
What characterizes assignment as opposed to pledging of accounts receivable?
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In which type of assignment do customers continue making payments to the assignor?
In which type of assignment do customers continue making payments to the assignor?
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What is typically charged by the assignee for the assignment agreement?
What is typically charged by the assignee for the assignment agreement?
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How does factoring differ from assignment regarding ownership of accounts receivable?
How does factoring differ from assignment regarding ownership of accounts receivable?
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What must the customers do when their accounts are factored?
What must the customers do when their accounts are factored?
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What type of arrangement is factoring classified as?
What type of arrangement is factoring classified as?
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What happens in factoring regarding gains or losses?
What happens in factoring regarding gains or losses?
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What is the typical percentage of face value that the assignee may lend against assigned accounts?
What is the typical percentage of face value that the assignee may lend against assigned accounts?
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What is the primary difference in credit risk between collateralized and noncollateralized liabilities?
What is the primary difference in credit risk between collateralized and noncollateralized liabilities?
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Which form of receivable financing requires the borrowing entity to make collections but may involve turning them over to the bank?
Which form of receivable financing requires the borrowing entity to make collections but may involve turning them over to the bank?
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In which situation might an entity seek to finance its receivables?
In which situation might an entity seek to finance its receivables?
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Which of the following best describes the process of assigning accounts receivable?
Which of the following best describes the process of assigning accounts receivable?
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What is typically charged by the factor for its services in a factoring arrangement?
What is typically charged by the factor for its services in a factoring arrangement?
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What does the factor's holdback represent in a factoring agreement?
What does the factor's holdback represent in a factoring agreement?
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What is one key aspect of accounting for a pledged account receivable loan?
What is one key aspect of accounting for a pledged account receivable loan?
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What is a common outcome of delayed collections on accounts receivable?
What is a common outcome of delayed collections on accounts receivable?
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Who is considered the liable party in a promissory note?
Who is considered the liable party in a promissory note?
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Which method of receivable financing allows for gaining cash by assigning receivables to a lender?
Which method of receivable financing allows for gaining cash by assigning receivables to a lender?
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What role does an endorser play in the discounting of a note receivable?
What role does an endorser play in the discounting of a note receivable?
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What is secondary liability in the context of endorsement?
What is secondary liability in the context of endorsement?
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Which of the following statements about receivable financing is correct?
Which of the following statements about receivable financing is correct?
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What does the term 'with recourse' indicate in an endorsement?
What does the term 'with recourse' indicate in an endorsement?
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What is the main purpose of factoring accounts receivable?
What is the main purpose of factoring accounts receivable?
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What occurs before merchandise is shipped to a customer in a continuous factoring arrangement?
What occurs before merchandise is shipped to a customer in a continuous factoring arrangement?
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Which items should be included in the inventory according to the legal test?
Which items should be included in the inventory according to the legal test?
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Under FOB destination terms, when does ownership of goods transfer?
Under FOB destination terms, when does ownership of goods transfer?
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Which situation indicates that the goods sold on installment are still the property of the seller?
Which situation indicates that the goods sold on installment are still the property of the seller?
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In the case of goods purchased FOB shipping point, who is responsible for freight charges?
In the case of goods purchased FOB shipping point, who is responsible for freight charges?
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What happens to goods in transit sold under FOB destination terms?
What happens to goods in transit sold under FOB destination terms?
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If an entity does not have the title to goods, how should these goods be treated?
If an entity does not have the title to goods, how should these goods be treated?
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What does the term 'passing of title' refer to?
What does the term 'passing of title' refer to?
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Which of the following goods would normally be excluded from an entity's inventory?
Which of the following goods would normally be excluded from an entity's inventory?
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Study Notes
Receivable Financing
- Receivable financing is the ability of a company to raise money by using its receivables.
- This is especially useful during economic downturns when sales decrease and customers pay slowly.
Forms of Receivable Financing
- Pledge of accounts receivable: This is a loan secured by accounts receivable, but the company still collects payments and uses them for debt repayment.
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Assignment of accounts receivable: This is a formal type of pledge where the borrower (assignor) transfers rights to specific accounts receivable to a lender (assignee) in exchange for a loan.
- This is secured by a financing agreement and promissory note.
- Assignments can be done with or without notification to the customer.
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Factoring: This involves outright selling of accounts receivable to a financial institution called a factor, who assumes credit and collection responsibility.
- The factor might charge a commission (5% - 20%) for these services.
- There are two types: casual factoring, which is used when a company needs immediate cash, and factoring as a continuing agreement, where the factor purchases all of the seller's receivables and assumes credit approval.
- The factor might withhold a portion of the proceeds as a "factor's holdback" for potential customer returns and allowances.
Discounting of Notes Receivable
- Discounting: When a company needs cash before the maturity date of a promissory note, they can sell it to a bank or financial institution called a discounter for a discounted amount.
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Endorsement: This is the transfer of right to a negotiable instrument, typically by signing the back of the note.
- This can be done "with recourse," meaning the seller becomes liable for payment if the buyer defaults. This is called secondary liability in legal terms and contingent liability in accounting.
Inventory Valuation
- Ownership: Inventory must belong to the company to be included in its inventory, regardless of location.
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FOB (Free on Board): The FOB term in a sales contract determines ownership during transit.
- FOB destination: The buyer owns the goods upon arrival at their destination, and the seller is responsible for freight charges until delivery.
- FOB shipping point: The buyer owns the goods once they are shipped, and is responsible for freight charges from the shipping point.
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Other costs: Only costs incurred to bring inventory to its current location and condition are included in the inventory valuation.
- Costs excluded from inventory valuation and expensed instead:
- Abnormal waste
- Storage costs (except for goods in process)
- Administrative overhead not directly related to inventory
- Distribution or selling costs.
- Costs excluded from inventory valuation and expensed instead:
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Service providers: For a service provider, inventory costs are mainly labor and other personnel costs directly involved in providing the service.
- Sales and general administrative personnel costs are expensed.
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Description
This quiz covers essential concepts of receivable financing, focusing on its importance for businesses, especially during economic downturns. It includes different forms such as pledges, assignments, and factoring, highlighting their mechanisms and implications.
