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Acc221Chapter7 - 7 The Revenue/Receivables/Cash Cycle...

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7 The Revenue/Receivables/Cash Cycle Overview Chapter 7 returns us to a look at accounting transactions and their eventual reporting in the form of financial statements. This chapter looks at a cycle that is usually the most important for a company. For some companies, the transactions and record keeping that go on for the revenue, receivables, and cash cycle account for the vast majority of the company’s total bookkeeping responsibilities. Along with the sale of merchandise and/or services (and the subsequent collection of cash on those sales) are a variety of transactions and/or journal entries that are a bit more complicated and rare. One of those is the reporting of bad debts, usually accounted for only once a period in the form of an adjusting entry. There are multiple methods to account for bad debts—some in accordance with GAAP and one that is not (but is still widely used for small, cash-basis businesses and for tax purposes). Other entries (that are slightly more complicated and somewhat rarer than the everyday sales entries) include discounts, warranties, and the accounting for sales returns and allowances. The bank reconciliation is something introduced in this chapter, which you may not have encountered before. Bank reconciliation not only helps to control the handling of cash, but it is also required in order to get the correct balance of cash to show up on the statement of cash flows and balance sheet. In the “Expanded Material” section of this chapter, various means of turning receivables into cash are discussed. (It’s not always as straightforward as you’ve been instructed thus far.) In addition, other kinds of receivables are gone over in detail so that you can understand some other important items that you are likely to see on a balance sheet. Finally, continuing the discussion from Chapter 5 on the statement of cash flows, a few items that are covered in this chapter that weren’t touched on yet back in Chapter 5 are explained in terms of their effect on the statement of cash flows using either the direct or indirect method.
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7-2 Chapter 7 Learning Objectives Refer to the Review of Learning Objectives at the end of the chapter. It is crucial that this section of the chapter is second nature to you before you attempt the homework, a quiz, or exam. This important piece of the chapter serves as your CliffsNotes or “cheat sheet” to the basic concepts and principles that must be mastered. If after reading this section of the chapter you still don’t feel comfortable with all of the Learning Objectives covered, you will need to spend additional time and effort reviewing those concepts that you are struggling with. The following “Tips, Hints, and Things to Remember” are organized according to the Learning Objectives (LOs) in the chapter and should be gone over after reading each of the LOs in the textbook.
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