Today is December 30, 2019. In order to capture the attention of online shoppers, Cyber Retail Company had a “Buy Now, Pay Later” sale on Monday, December 2, 2019. The terms of the sale were such that anyone who bought merchandise was required to pay for the merchandise on (or before) February 28, 2020. For any customer who failed to pay by that date, Cyber Retail would “charge” that customer’s purchase to the credit card account that the customer had provided at the time he/she placed the order. Customers purchased $ 5,000,000 of merchandise during the “Buy Now, Pay Later” sale. Cyber estimates that if they waited until February 28, 2020, they would ultimately collect $ 4,800,000 related to this pool of receivables. One component of the difference, estimated at $ 50,000, relates to the “fees” that Cyber Retail would have to pay to the credit card companies upon receiving payment. The other $ 150,000 relates to “lost revenue” resulting from customers whose credit cards are rejected on February 28, 2020 when Cyber Retail processes the transactions. Cyber Retail believes it will be difficult to track down the customers at that point in time, and accordingly, has established an “Allowance Account” in the amount of $ 200,000 to reflect the credit card fees and lost revenue related to the portfolio of receivables. Cyber Retail would like to monetize the portfolio of receivables prior to the end of the year, and has begun discussions with Friendly Factor Company. Friendly Factor Company has proposed the following deal: i. Friendly Factor will pay Cyber Retail $ 4,700,000 on December 31, 2019 ii. Friendly Factor will retain all cash flows related the portfolio of receivables, and will retain all rights to pursue collection from customers whose credit cards are rejected on February 28, 2020. Friendly Factor believes that they will be able to collect 40% of any payments due from customers whose initial credit card is rejected. iii. Cyber Retail will have no continuing involvement with the receivables, and Friendly Factor may resell any portion of them at any time if so inclined. Based on the information provided above, if Cyber Retail accepts the deal proposed by Friendly Factor, Cyber Retail would report a GAIN / LOSS / NEITHER (circle one) in the amount of $ ___________________ (fill in the blank with the applicable amount or $ 0) at the time of the transaction.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Today is December 30, 2019. In order to capture the attention of online shoppers, Cyber Retail Company had a “Buy Now, Pay Later” sale on Monday, December 2, 2019. The terms of the sale were such that anyone who bought merchandise was required to pay for the merchandise on (or before) February 28, 2020. For any customer who failed to pay by that date, Cyber Retail would “charge” that customer’s purchase to the credit card account that the customer had provided at the time he/she placed the order.
Customers purchased $ 5,000,000 of merchandise during the “Buy Now, Pay Later” sale. Cyber estimates that if they waited until February 28, 2020, they would ultimately collect
$ 4,800,000 related to this pool of receivables. One component of the difference, estimated at $ 50,000, relates to the “fees” that Cyber Retail would have to pay to the credit card companies upon receiving payment. The other $ 150,000 relates to “lost revenue” resulting from customers whose credit cards are rejected on February 28, 2020 when Cyber Retail processes the transactions. Cyber Retail believes it will be difficult to track down the customers at that point in time, and accordingly, has established an “Allowance Account” in the amount of $ 200,000 to reflect the credit card fees and lost revenue related to the portfolio of receivables.
Cyber Retail would like to monetize the portfolio of receivables prior to the end of the year, and has begun discussions with Friendly Factor Company. Friendly Factor Company has proposed the following deal:
i. Friendly Factor will pay Cyber Retail $ 4,700,000 on December 31, 2019
ii. Friendly Factor will retain all cash flows related the portfolio of receivables, and will
retain all rights to pursue collection from customers whose credit cards are rejected on
February 28, 2020. Friendly Factor believes that they will be able to collect 40% of
any payments due from customers whose initial credit card is rejected.
iii. Cyber Retail will have no continuing involvement with the receivables, and Friendly
Factor may resell any portion of them at any time if so inclined.
Based on the information provided above, if Cyber Retail accepts the deal proposed by
Friendly Factor, Cyber Retail would report a GAIN / LOSS / NEITHER (circle one)
in the amount of $ ___________________ (fill in the blank with the applicable amount
or $ 0) at the time of the transaction.
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