Acc notes 310 test 3

Acc notes 310 test 3 - Define and identify items classified...

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Define and identify items classified as cash and cash equivalents. Cash – bank deposits, currency in coins, and checks recvd from custs; monetary asset based on rate of exchange in effect on bal sheet date Cash Equivalents: highly liquid investment easily convertible into cash, usually grouped w/ cash on bal sheet : Most include Money Market, CDs, commercial paper, and US treasury bills, which have a term of 90 days or less from date of purch; These ST investments must be reported at fair market value Co’s set own policies on what’s equivalents Restricted Cash: restrictions imposed internally by management on cash. Cash is set aside to be readily available for a specific purpose in future. Co’s set aside cash for dividends, facility expansions or other. It is segregated from regular cash. Classified as Current or LT Assets depending on intended use. Compensating Balances – also excluded from cash bal. Is any account co is denied unlimited access. Ex – when loan is given, co must maintain min balance in acct called compensating bal. for agreement (collateral) Effective interest rate formula: Total interest cost Effective Amount Borrowed CB disclose separately from cash and cash equiv. It is LT recurrent asset Examples: letters of credit, proceeds from sales of assets avail for debt reductions by col. Agent, lock box cash management deposit requirements, redeemable subordinated noted in escrow. Foreign Currency Gain: Dr. Cash *cash recvd X difference in exchg rate Cr. Gain on Currency 2. Explain why cash controls are important and describe the specific tools used to control and protect cash. Cash Controls 1. limit number people who handle cash 2. separate acctng task involving cash between diff employees 3. bond employees who handle cash and cash records 4. use cash register and safe 5. use checking accnt to make all cash payment and for another record 6. deposit cash receipts in bank in timely fashion (daily)
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3. Prepare a Bank Reconciliation Bank Balance + Deposits in transit Deposits recvd by co, not recognized by bank - Outstanding Checks Checks written by co, credited to ledger, not processed by bank +/- Errors Ledger Balance + Direct Collection of Receivables + interest income - direct charges *automatic payments (rent, utilities etc) - unrecorded bank charges - NSF/ Returned checks and fees * reinstate cust. Acct receiv +/- Errors * co mistakenly recognized deposit of $200 as $2000 Co must subtract $1800 Journal Entries Receivables Collected Dr. Cash Cr. Ac/ Rec Interest Income Dr. Cash Cr. Int. Income Bank Fees (expenses, charges) Dr. Expense Fee Cr. Cash Returned Check Dr. Ac/Rec Cr. Cash 4. Define and Identify Different Types of Receivables Receivables: claims to money, goods or services owed to co by others Classification of receivable depends on when due, and whom its from Account Receivable: Amt owed by cust for goods or services purchased in normal business; AKA trade receivables; typically due w/i a year Net Realizable Value : the amount co expects to receive in cash at time of collection of ac/rec. It is
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Acc notes 310 test 3 - Define and identify items classified...

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