Ch7revised - Ch 7 Cash and Receivables Cash Most liquid...

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Ch. 7 Cash and Receivables Cash Most liquid asset. Medium of exchange. Basis for measuring and accounting for all other items. Generally classified as current asset. To be reported as cash on balance sheet, it must be readily available for payment of current debts and free from contractual limitations restricting its use. Cash Coins, currency, and available funds on deposit at the bank. Negotiable instruments (e.g., money orders, certified checks, cashier’s checks, personal checks, and bank drafts). Savings accounts – usually classified as cash even though bank has right to demand notice for withdrawal. Money market funds, money market savings certificates, certificates of deposit (CDs), etc., are classified as temporary investments. Money market funds that provide checking account privileges are classified as cash. See footnote 1, p. 320. Postdated checks and IOUs are receivables. Travel advances are receivables if the advances are to be collected from employees or deducted from their salaries. Otherwise, treat them as prepaid expenses. Postage stamps on hand are classified as part of office supplies or prepaid expenses. Petty cash funds and change funds are cash. Internal control is imperative for cash. Reporting cash: Restricted cash. Bank overdrafts. Cash equivalents. 1
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Restricted cash: Segregate from “regular” cash when material in amount. Classify as either current asset or long-term asset. Compensating balances – part of demand deposit maintained by corporation as support for existing borrowing with lending institution. See p. 322. Bank overdrafts: Bank pays check written for more than amount in cash account. Current liability, generally added to amount reported as accounts payable. Disclose separately if material. If cash is available in another account with same bank, show overdraft as offset. Required. Cash equivalents: Short-term, highly liquid investments that are both (a) readily convertible to known amounts of cash, and (b) so near to maturity that they present insignificant risk of changes in interest rates. Generally only investments with original maturities of three months or less qualify as cash equivalents. Examples:
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This note was uploaded on 02/19/2010 for the course ACC 4300 taught by Professor Quinton during the Fall '99 term at Alabama A&M University.

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Ch7revised - Ch 7 Cash and Receivables Cash Most liquid...

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