Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

Consumers who agree to a "no interest" installment plan should be aware of which of the following accounting implications?

No interest is ever recorded by either the buyer or the seller.

The receivable is always classified as a note receivable.

The installment plan has no impact on the recognition of revenue.

The total cost may include hidden interest that is recognized as interest revenue by the seller over time.

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Verified step by step guidance

Understand the concept of 'no interest' installment plans: These plans often advertise no interest, but the total cost of the product may include hidden interest. This means the seller has embedded the interest into the price of the product.

Recognize the accounting treatment for the seller: The seller records the total amount as revenue initially, but over time, they separate the hidden interest portion and recognize it as interest revenue.

Understand the buyer's perspective: The buyer pays the total cost over time, which includes the hidden interest. However, the buyer does not explicitly record interest expense unless specified in the agreement.

Clarify the classification of the receivable: The receivable is not always classified as a note receivable. It depends on the terms of the agreement. If there is a formal written promise to pay, it may be classified as a note receivable; otherwise, it is an account receivable.

Conclude the impact on revenue recognition: The installment plan does impact revenue recognition for the seller. The seller must allocate a portion of the total cost to interest revenue over the life of the installment plan, as per the matching principle in accounting.