510chapter7fall2009bb

510chapter7fall2009bb - Chapter 7: Cash and Receivables...

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Chapter 7: Cash and Chapter 7: Cash and Receivables Receivables    
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What’s Important What is cash and how is it reported? Recognition of accounts receivable Valuation of accounts receivable Recognition of notes receivable Valuation of notes receivable Disposition of notes/accounts receivable Reconciliation of bank balances
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Most liquid asset Standard medium of exchange Basis for measuring and accounting for all items Current asset Examples : coin, currency, available funds on deposit at the bank, money orders, certified checks, cashier’s checks, personal checks, bank drafts and savings accounts. What is Cash? Cash
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Deposits (CDs) and short term paper are classified as temporary investments Post dated checks, money market funds, bank overdrafts, travel advances and stamps on hand are not classified as cash What is not “Cash” What is not “Cash”
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The reporting of cash depends upon whether it is: a cash equivalent restricted cash or a bank overdraft Reporting of Cash Reporting of Cash
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Short-term, highly liquid investments that are both readily convertible to cash. so near to maturity that they represent insignificant risk of interest rate changes. Generally only investments with original maturities of three months or less fall under this classification. Cash Equivalents Cash Equivalents
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Cash equivalents may be combined with temporary investments on the balance sheet (e.g. treasury bills, commercial paper) Cash Equivalents Cash Equivalents
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Companies segregate restricted cash from “regular” cash for reporting purposes. Examples , restricted for: (1) plant expansion, (2) retirement of long-term debt, and (3) compensating balances. Reporting Cash Restricted Cash Illustration 7-1 Illustration 7-1
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Compensating balances: are amounts maintained by a corporation with a bank in support of existing borrowing arrangements. are identified as current assets separate from cash, if they relate to short-term loans. are identified as non-current assets separate from cash, if they relate to long-term loans. Reporting Cash Reporting Cash
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When a company writes a check for more than the amount in its cash account. Reporting Cash Bank Overdrafts Generally reported as a current liability. Offset against cash account only when available cash is present in another account in the same bank on which the overdraft occurred.
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E7-1 Compute the correct amount of cash and cash equivalents to be reported on the balance sheet for December 31, 2010 and indicate the proper reporting for other items that are not considered cash. 1. Commercial savings account of $600,000 and a commercial checking account balance of $800,000 are held at First National Bank of Olathe. 2.
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510chapter7fall2009bb - Chapter 7: Cash and Receivables...

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