Allowance for Doubtful Accounts & Estimated Bad Debt

Allowance for Doubtful Accounts & Estimated Bad...

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Chapter 7 1 CHAPTER 7 - Cash and Receivables The next six chapters in our text all relate to assets. In general, these chapters are covered in 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. Liquidity is 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 Cash Cash 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 bank drafts. < money market funds with check writing privileges Cash 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 and referred 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 in another account at the same bank . 2. Restricted cash Cash restricted for some special purpose (such as the retirement of bonds) is reported separately in either the current asset section or the noncurrent asset section of the balance 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 current asset section or the noncurrent asset section, depending on whether the borrowing arrangement is short- term or long-term. (See Exercise 1)
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Chapter 7 2 B. Control of Cash Cash requires special controls, because: < involved in almost all transactions < easily concealed, converted and transported < both too much and too little cause problems Many control procedures exist for cash transactions. Two that are discussed in your text are: < petty cash system - See Appendix 7A < bank reconciliations Bank Reconciliation In this class we will reconcile both the bank statement balance and the book balance to the corrected cash balance. Balance per bank statement
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This note was uploaded on 04/04/2009 for the course ACC 321 taught by Professor Ahmedmokhtar during the Spring '09 term at Ain Shams University.

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Allowance for Doubtful Accounts &amp;amp; Estimated Bad...

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