ch07_SummaryNotes

ch07_SummaryNotes - CHAPTER 7 Cash and Receivables LEARNING...

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CHAPTER 7 Cash and Receivables LEARNING OBJECTIVES 1. Identify items considered cash. 2. Indicate how to report cash and related items. 3. Define receivables and identify the different types of receivables. 4. Explain accounting issues related to recognition of accounts receivable. 5. Explain accounting issues related to valuation of accounts receivable. 6. Explain accounting issues related to recognition of notes receivable. 7. Explain accounting issues related to valuation of notes receivable. 8. Explain accounting issues related to disposition of accounts and notes receivable. 9. Describe how to report and analyze receivables. *10. Explain common techniques employed to control cash. *11. Describe the accounting for a loan impairment. *This material is covered in an Appendix to the chapter. CHAPTER REVIEW *Note: All asterisked (*) items relate to material contained in the Appendix to the chapter. 1. (L.O. 1) Chapter 7 presents a detailed discussion of two of the primary liquid assets of a business enterprise, cash and receivables. Cash is the most liquid asset held by a business enterprise and possesses unique problems in its management and control. Receivables are composed of both accounts and notes receivables. Chapter coverage of accounts receivable places emphasis on trade receivables. In covering notes receivables, the chapter includes both short-term and long-term notes. Nature of Cash 2. Cash consists of coin, currency, bank deposits, and negotiable instruments such as money orders, checks, and bank drafts. Cash that has been designated for some specific use, other than for payment of currently maturing obligations, is segregated from the general cash account. This amount may be classified as a current asset if it will be disbursed within one year or the operating cycle, whichever is longer. Otherwise, the amount should be shown as a noncurrent asset. Reporting Cash 3. (L.O. 2) Cash equivalents are short-term, highly liquid investments that are both (a) readily convertible to known amounts of cash and (b) so near their maturity that they present insignificant risk of changes in interest rates. If an asset is not cash and is short- term in nature, it should be reported as as a temporary investment. 4. It is common practice for an enterprise to have an agreement with a bank concerning credit and borrowing arrangements. When such an agreement exists, the bank usually requires the enterprise to maintain a minimum cash balance on deposit. This minimum balance is known as a compensating balance. Compensating balances that result in legally restricted deposits must be separately classified in the balance sheet. The nature
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of the borrowing arrangement determines whether the compensating balance is classified as a current asset or a noncurrent asset. 5.
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ch07_SummaryNotes - CHAPTER 7 Cash and Receivables LEARNING...

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