Quiz 3

1. 5 indicators for determining when a performance obligation is satisfied and an account

receivable recognized.
a. Seller has the right to payment from the customer (buyer is obligated to pay the seller).
b. Seller has passed legal title to the customer.
c. Seller has transferred physical possession of the goods.
d. Seller no longer has significant risks and rewards of ownership of the goods.
e. Buyer has accepted the asset.

2. Methods used in accounting for uncollectible accounts:

a. Under the direct write-off method, when a company determines a particular account to be
uncollectible, it charges the loss to Bad Debt Expense.

Bad Debt Expense XXX

Accounts Receivable XXX

b. The allowance method of accounting for bad debts involves estimating uncollectible
accounts at the end of each period. This ensures that companies state receivables on the
statement of financial position at their cash realizable value.

Bad Debt Expense XXX

Allowance for Doubtful Accounts XXX

3. What is Cash Realizable Value?

Cash realizable value is the net amount the company expects to receive in cash. At each financial
statement date, companies estimate uncollectible accounts and cash realizable value using
information about past and current events as well as forecasts of future collectability.

4. 2 ways to transfer receivables for cash:

The transfer of receivables to a third party for cash happens in one of two ways:
a. Sales of receivables
b. Secured borrowing