Chapter 7

coin, currency, and available funds on deposit at the bank

(money orders, certified checks, cashier's checks, personal checks, and bank drafts, savings accounts, petty cash funds and change funds)

Money Market funds that provide CHECKING ACCT privileges

Money market funds, money market savings certificate, certificate of deposit(CDs), and similar types of deposits and "short-term paper"

Usually contain restrictions or penalties on their conversion to cash

Classify: Cash

report as cash

Classify:Current and noncurrent assets

Classify: Cash

report as cash

Classify: Temporary investment

Classify: Cash equivalent

Classify: Receivables

Classify: Receivables

Classify: Prepaid Expense

Classify: Prepaid expenses

May also be classified as office supplies inventory

Classify: Current liability

If right of offset exists, reduce cash

Classify: Cash seperately classified as a deposit maintained as compensating balance

Classify as current or noncurrent in the balance sheet. disclose seperately in notes details of arrangement

short-term, highly liquid investments that are BOTH

• - readily convertible to known amounts of cash
• - so near their maturity they present insignificant risk of changes in        value b/c of changes in interest rates

(ex. Treasury bills, commercial paper, money market funds)

Likely that FASB will eliminate from finincial statement presentation

material amount segregated from "regular" cash for reporting purposes

classified(on blance sheet):

current assets- if using cash for payment of existing or maturing obligation (within 1 yr or operating cycle, whichever is longer)

long-term assets- holding cash for a longer period of time (1 yr or operating cycle)

companies need to determine whether any of the cash in accts outside US is restricted by regulations against exporation of currency

minimun cash balances banks and other lending institutions often require customers to maintain

"portion of any demand deposit maintained by corporation which constitutes support for existing borrowing arrangements of corp w/ lending institution"

Classify"

current assets- legally restricted deposits held as compensationg balances against short-term borrowing among "cash and cash equivalent"

Noncurrent assets in investments of other assets- seperately restricted deposits held as compensating bal against long-term borrowing

claims held against customers and others for money, goods, or services.

Short-term [collect within 1 yr or current operating cycle, whichever is longer]

Long-term [all other receivable]

customers often owe a company amts for goods bought or services rendered

Accts Rec- oral promises of the purchaser to pay for goods and services sold ["open accts" resulting from short-term extenstion of credit {30-60 day}]

Notes Rec- written promises to pay certain sum of money on specified future date [short or long-term]

arise from variety of transactions

1. Advances to officers and employees

2. Advances to subsidiaries

3. Deposits paid to cover potential damages or losses

4. Deposits paid as a guarantee of performance or payment

5. Dividends and interest receivable

6. Claims against:(a) Insurance companies for casualties sustained (b) defendants under suit (c) governmental bodies for tax refunds (d) common carriers for damaged or lost goods (e)creditors for returned, damaged, or lost goods (f) customers for returnable items [crates, containers, etc.]

Amount to be recognized is exchange price (amount due from the debtor)

• 2 factors that complicate exchange price measure:
• 1. availability for discounts (trade & cash discounts)
• 2. length of time b/w sale and due date of payments (interest element)

Prices may be subject to a trade or quantity discount

List price - Trade discount = Net bill to customer

used to induce prompt payment

ex: 2/10, E.O.M., net 30, E.O.M. (2% discount if paid by 10th day of folling month, with full payment due by 30th day of following month)

companies ignore interest revenue related to accounts recvable b/c the amt of the discount is not usually material in relation to net income for period (excludes present value considerations)

1. Direct Write Off Receivable deemed to not be collectible (No Allowance Account)

• adv.- easy, simpe
• dis.- violates matching principle

2. Allowance Method

• adv.- proper matching principle
• dis.- involves estimates

• Receivable deemed to not be collected
• *when you know specific company will not pay*
• NO ALLOWANCE ACCOUNT
• Not considered appropriate, except when amount uncollectible is immaterial

• Bad Debt Expense                  XXX
•           Accts Rec                                  XXX

Is not writing off accounts, just determines adjusting entries

1. Income Statement Approach (% of Credit Sales)

2. Aging of Receivables [Balance Sheet Approach] (% of Accts Receivables)

net amount companies expect to receive in cash

companies value & report short-term receivables at NRV

• Estimated uncollectibles:
•     Bad Debt Expense         XXX
•          Allow Doubt Acct                XXX

• Specific account (actual uncollectibles):
•     Allow Doubt Acct           XXX
•            Acct Rec                             XXX