| Course | ACC 421 Intermediate Financial Accounting I (ACC/421) |
|---|---|
| Week | 4 |
| Paper type | Cash and receivables accounting paper |
| Length | about 1,024 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 421 Week 4
What Counts as Cash and What Will Be Collected: Cash Classification, Sales Discounts, an Expected-Loss Allowance and a Factoring Sale at a Composite Electrical Supply Distributor
[Student Name]
University of Phoenix
ACC/421: Intermediate Financial Accounting I
Week 4 Assignment
[Instructor Name]
[Date]
The distributor, its customers, its factor and all figures are composites written for a model paper; accounting rules and research findings come from the sources listed.
A composite distributor sells wire, conduit, breakers, lighting and other electrical supplies from four branches to about 2,600 electrical contractors, plus some walk-in customers. About 92% of sales are on credit, usually on terms of 2/10, net 30. Year-end sales were $86 million, and receivables stood at $12.4 million. For a distributor like this, the income statement shows what was sold, but the receivables note shows what the company actually expects to be paid. This paper works through the year-end accounting for the distributor's cash and receivables and explains each judgment.
What Belongs in Cash
The distributor's general ledger shows $3.9 million across several accounts. Operating and payroll accounts, $2.6 million, and a money market fund with daily access, $0.8 million, are cash and cash equivalents. A $0.3 million certificate of deposit with an original maturity of six months is not a cash equivalent, which requires an original maturity of three months or less, and is reported as a short-term investment. A $0.2 million deposit held by an insurer as collateral for workers' compensation cannot be withdrawn and is restricted cash, shown separately and included with cash only in the reconciliation on the cash flow statement. Reported cash and cash equivalents are $3.4 million.
A Sale With a Cash Discount
On December 8, a contractor bought $50,000 of wire on terms of 2/10, net 30. The distributor uses the net method, recording the receivable and revenue at $49,000, the amount it expects most customers to pay. The net method reflects the price a customer who pays promptly actually pays, which is consistent with measuring revenue at the amount the company expects to receive (Financial Accounting Standards Board, 2014). The contractor paid on December 28, after the discount period. The distributor received $50,000, credited accounts receivable for $49,000 and recorded $1,000 as sales discounts forfeited, reported as other income. Under the gross method the sale would have been recorded at $50,000 and nothing more recorded when the discount lapsed, but discounts taken would have reduced revenue.
Estimating the Allowance for Credit Losses
Current standards require an allowance for the losses expected over the life of receivables, estimated from past experience, present conditions and reasonable forecasts (Financial Accounting Standards Board, 2016). The distributor groups customers into pools with similar risk. Large contractors with strong payment records owe $7.1 million and carry an expected loss rate of 1%. Small contractors owe $4.6 million, with a rate of 4% reflecting a regional slowdown in new home building. Balances more than 90 days past due, $0.7 million, are evaluated account by account and together carry expected losses of $0.26 million. The required allowance is $71,000 plus $184,000 plus $260,000, or $515,000.
Before adjustment, the allowance had a balance of $224,000 after the year's write-offs and recoveries. The distributor records bad debt expense of $291,000 to bring the allowance to $515,000. Net receivables reported on the balance sheet are $11,885,000.
The estimate involves judgment, and McNichols and Wilson (1988) found evidence that managers adjust bad debt provisions to influence reported income. The controller documents the pool definitions, rates and the forecast behind the small-contractor rate, and the auditors test them against later collections.
A Write-Off and a Recovery
In March, a small contractor closed its business owing $18,000, and the distributor wrote off the account. The entry debits the allowance and credits accounts receivable for $18,000. No expense is recorded at write-off, because the expense was recognized when the allowance was built. Net receivables do not change.
In August, the contractor's former owner, now working for a larger firm, paid $6,000 to settle part of the debt. The distributor first put $6,000 back on the customer's account, with the allowance taking the offsetting credit, and only then recorded the cash receipt. Reinstating the account preserves a record that the customer paid something, which matters if the person applies for credit again.
Selling Receivables to a Factor
In November, to fund a bulk purchase of copper wire before a price increase, the distributor sold $2 million of receivables from large contractors to a factor without recourse. The factor charged a 3% fee and held back 5% of the balance until the accounts are collected. The distributor gave up control of the receivables, meeting the conditions for sale accounting. It received $1,840,000 in cash, recorded a $100,000 receivable from the factor for the holdback, recorded a $60,000 loss on the sale of receivables and removed the $2 million from its accounts receivable.
Petersen and Rajan (1997) found that suppliers extend trade credit in part because they are well placed to judge and monitor customers, and selling receivables gives that advantage to someone else for a fee. The distributor sold only its lowest-risk accounts, which kept the fee low. The fee of $60,000 amounts to roughly an 18% annual cost if the accounts would otherwise have been collected in about two months, far more than the 7% the distributor pays on its credit line, so management used factoring once, for a specific purchase, rather than as a habit. The sale also removed its best receivables from the pool, which is one reason the remaining allowance rate is higher.
Protecting Cash at the Counter
Walk-in customers and contractors often pay by check at the counter. The Association of Certified Fraud Examiners (2024) reported that billing and skimming schemes remain among the most common frauds in small and midsize companies. The distributor requires a prenumbered receipt for every counter payment, has a second person list checks daily, deposits all receipts the same day and assigns the monthly bank reconciliation to someone who does not handle cash or post receivables.
Conclusion
The distributor's year-end work separated true cash from restricted and short-term balances, recorded discounts consistently under the net method, estimated credit losses by pool under the expected-loss standard and recorded a factoring transaction as a sale. Net receivables of about $11.9 million now represent what the distributor expects to collect, and the notes explain the judgments behind that figure.
References
Association of Certified Fraud Examiners. (2024). Occupational fraud 2024: A report to the nations.
Financial Accounting Standards Board. (2014). Revenue from contracts with customers (Topic 606) (Accounting Standards Update No. 2014-09).
Financial Accounting Standards Board. (2016). Financial instruments, credit losses (Topic 326): Measurement of credit losses on financial instruments (Accounting Standards Update No. 2016-13).
McNichols, M., & Wilson, G. P. (1988). Evidence of earnings management from the provision for bad debts. Journal of Accounting Research, 26, 1-31. https://doi.org/10.2307/2491176
Petersen, M. A., & Rajan, R. G. (1997). Trade credit: Theories and evidence. The Review of Financial Studies, 10(3), 661-691. https://doi.org/10.1093/rfs/10.3.661
What the ACC 421 Week 4 instructions ask
The ACC 421 Week 4 assignment typically asks students to explain and apply the accounting for cash and receivables. Prompts may cover what is included in cash and cash equivalents, restricted cash and compensating balances, bank reconciliations, trade and cash discounts, the allowance for doubtful accounts or credit losses under current standards, write-offs and recoveries, notes receivable and transfers of receivables through sale or secured borrowing. Some sections supply numerical problems, while others ask for a written analysis of a company's receivables. Most expect journal entries and an explanation of how each item appears on the balance sheet and income statement, with APA citations of the textbook and relevant standards.
How this ACC 421 Week 4 example is built
An electrical supply distributor fits the week because nearly all its revenue comes from contractors on credit terms, so receivables are its largest asset and credit losses its most important estimate. The paper begins with a cash classification question the controller faced at year end. It then records a discounted credit sale using the net method and explains the forfeited discount. The allowance section groups customers into pools with different loss rates, calculates the required balance and reconciles it to the existing allowance. A write-off and a later recovery follow. The factoring section shows the entries for a sale without recourse, including the holdback, and a final section describes cash controls at the sales counter.
ACC 421 Week 4 grading rubric: where the points go
Marks in the receivables week generally follow the accuracy of entries and the soundness of estimates. Faculty check that restricted balances are excluded from cash and cash equivalents, that discounts are recorded consistently under the chosen method and that the allowance is estimated from a stated approach and adjusted to the required balance rather than simply added to. Write-offs should reduce both receivables and the allowance without touching expense, and recoveries should reinstate the receivable before recording cash. Transfers of receivables must be classified correctly as sales or borrowings. Interpretation of what the figures mean for liquidity adds credit, and correct APA references with tidy presentation account for the rest.
ACC 421 Week 4 help: mistakes to avoid
A recurring ACC 421 Week 4 error is adding the year's estimate to the existing allowance instead of adjusting the allowance to the required ending balance under the aging approach. Compute the target, compare it with the current balance and record the difference. Another is debiting bad debt expense when an account is written off under the allowance method. Only the allowance is debited. Students also treat all receivable transfers alike; explain whether control passed to the factor. Under the net method, record the sale net of the discount and any discount not taken as other income. Keep restricted cash out of cash and cash equivalents. Finally, discuss what the allowance says about customer quality.
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ACC 421 Week 4 questions, answered
What does ACC 421 Week 4 usually cover?
It usually covers cash and receivables: cash and cash equivalents, restricted cash, sales discounts, the allowance for credit losses, write-offs and recoveries and transfers of receivables.
Where can I find a free ACC 421 Week 4 sample paper?
This page carries an electrical supply distributor example, with every entry for cash, discounts, the allowance and factoring worked and annotated, open to all readers. Tell us about your assignment and the first custom draft is on us.
What is the difference between the gross and net methods for sales discounts?
The gross method records the full invoice and records discounts when taken; the net method records the sale at the discounted amount and records discounts not taken as other income.
How does the allowance for credit losses work under current standards?
Each period the company forecasts how much of what customers owe it will never collect, drawing on its own loss experience, today's conditions and reasonable expectations, then moves the allowance to that figure.
When is a transfer of receivables a sale?
When the transferor gives up control of the receivables, meeting the conditions in the standards; otherwise the transfer is recorded as a secured borrowing.
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