ACCT101Chapter7Outline - NAME Krishna Desai Sussex County...

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NAME: Krishna Desai Sussex County Community College ACCT101 - Chapter 7 Outline Professor King Management Issues Related to Cash and Receivables Cash Management On the balance sheet, cash usually consists of Currency and coins on hand, Checks and money orders from customers, and Deposits in checking and savings accounts. Compensating balance: A minimum amount that a bank requires a company to keep in its bank account as part of a credit-granting arrangement. Accounts receivable and notes receivable are major types of short-term financial assets. Accounts receivable: Short-term financial assets that arise from credit sales made in the ordinary course of business. Trade credit: Credit sales made in the ordinary course of business. Terms of trade credit usually range from 5 to 60 days. Receivable turnover shows how many times, on average, a company turned its receivables into cash during an accounting period. Days’ sales uncollected: Shows, on average, how long it takes to collect accounts receivable. Factoring: The sale or transfer of accounts receivable to a factor (i.e., the purchaser). With recourse: Seller of the receivables is liable to the factor if a receivable cannot be collected. Without recourse: The factor bears any losses from unpaid accounts. Contingent liability: A potential liability that can develop into a real liability if a particular event occurs. Securitization: A process in which a company groups its receivables in batches and sells them at a discount to other companies or investors.
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