Trade Receivables
Trade receivables MCQs focus on bad debt estimates and allowance accounting, expect 2-3 questions per sitting. The most-tested trap: under the balance sheet approach (aging of AR), you adjust for the EXISTING allowance balance before recording bad debt expense. If the allowance already has a $5,000 debit balance and your target is a $30,000 credit, the entry is $35,000, not $30,000. Also nail the difference between factoring without recourse (AR comes off your books, it's a sale) and assignment (AR stays on your books, it's a borrowing).
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What AICPA wants you to know
- 1Compute bad debt expense and the allowance using the income statement and balance sheet approaches
- 2Apply the CECL model (ASC 326) for estimating expected credit losses
- 3Distinguish factoring without recourse from factoring with recourse
- 4Explain assignment and pledging of receivables and proper accounting treatment
- 5Calculate net realizable value of accounts receivable