Chapter 71CHAPTER 7 - Cash and ReceivablesThe next six chapters in our text all relate to assets. In general, these chapters are coveredin the order that the assets appear on the Balance Sheet. Chapter 7 covers cash (Section 1)and receivables (Section 2). Cash and receivables represent two of the most liquid of assets.Liquidityis an indication of an enterprise's ability to meet its obligations as they come due.I.Cash - Readily available for payment of current obligations and free from restrictions.A. Nature of CashCash includes:<coin and currency, including petty cash and change funds<bank deposits including checking and savings accounts<negotiable instruments such as money orders, cashiers' checks, personal checks, and bankdrafts.<money market funds with check writing privilegesCash does not include:<Postdated checks and I.O.U.s (Receivables)<Travel advances to employees (Receivables or prepaid expenses)<Postage stamps on hand (office supplies or prepaid expenses)<C Ds and short-term paper (temporary investments). Sometimes included with cash andreferred to as Cash Equivalents.Other considerations:1. Bank overdrafts should be reported as current liabilities. Exception:They may be offset against the cash account if there is available cash inanother account at the same bank.2. Restricted cashCash restricted for some special purpose (such as the retirement of bonds) is reportedseparatelyin either the currentasset section or the noncurrentasset section of thebalance sheet, depending on the date of availability or disbursement.3. Compensating balances against borrowing arrangements SEC suggests that this cash be reported separately in either the currentasset section orthe noncurrentasset section, depending on whether the borrowing arrangement is short-term or long-term. (See Exercise 1)
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