Chapter 7

Card Set Information

Chapter 7
2013-03-13 13:44:32
ACCT 301

Cash & Rec
Show Answers:

  1. Cash
    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
  2. Temporary Investments (Cash)
    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
  3. CASH (Unrestricted)
    Classify: Cash

    report as cash
  4. Cash (Restricted)
    Classify:Current and noncurrent assets
  5. Petty cash and Change funds
    Classify: Cash

    report as cash
  6. Short-term paper (maturity 3 to 12 months)
    Classify: Temporary investment
  7. Short-term paper (maturity of less than 3 months)
    Classify: Cash equivalent
  8. Postdated checks and IOU's (assumed to be collectible)
    Classify: Receivables
  9. Travel advances (assumed to be collected from employees or deducted from their salaries)
    Classify: Receivables
  10. Travel advances (not collected from employees or their paychecks)
    Classify: Prepaid Expense
  11. Postage on hand (as stamps or in postage meters)
    Classify: Prepaid expenses

    May also be classified as office supplies inventory
  12. Bank overdrafts
    Classify: Current liability

    If right of offset exists, reduce cash
  13. Compensating balances
    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
  14. Cash equivalents
    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
  15. Restricted cash
    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
  16. Compensating balances
    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"


    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
  17. Receivables
    claims held against customers and others for money, goods, or services.
  18. Current
    Short-term [collect within 1 yr or current operating cycle, whichever is longer]
  19. Noncurrent
    Long-term [all other receivable]
  20. Trade Receivables
    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]
  21. Nontrade Receivables
    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.]
  22. Recognition of Accounts Receivables
    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)
  23. Trade Discount
    Prices may be subject to a trade or quantity discount

    List price - Trade discount = Net bill to customer
  24. Cash Discounts (Sales Discounts)
    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)
  25. Net recognition of interest element
    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)
  26. Methods to Value Receivables
    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
  27. Direct write off
    • Receivable deemed to not be collected
    • *when you know specific company will not pay*
    • Not considered appropriate, except when amount uncollectible is immaterial

    • Bad Debt Expense                  XXX
    •           Accts Rec                                  XXX
  28. Allowance Method
    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)
  29. Net realizable Value (NRV)
    net amount companies expect to receive in cash

    companies value & report short-term receivables at NRV
  30. Allowance Method (Estimated v. Actual entries)
    • Estimated uncollectibles:
    •     Bad Debt Expense         XXX
    •          Allow Doubt Acct                XXX

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