ADMS3585Winter 2010 Ch7 slides

ADMS3585Winter 2010 Ch7 slides - CHAPTER 7...

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C H A P T E R 7 7 Cash and Receivables Cash and Receivables
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XYZ Corp. June 30, 2003 Assets s s Liabilities s Cash and cash equivalents $30,000 Accounts Payable $1,600,000 Accounts receivable $130,000 Other current liabilities $320,000 Notes  receivable $140,000 WHAT DO THE NUMBERS MEAN? WHAT DO THE NUMBERS MEAN?
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What do the Numbers Mean? Cash and accounts receivable information  is  critical  to the stakeholders of the firm WHY? Future cash flows : amount, timing, uncertainty Ability to pay current debt  (whether current  assets fall short of current obligations) Level is critical:  liquidity going concern  (ability  to continue in the normal course of business)
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Cash Cash Section 1:
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Overview What is cash? What are cash equivalents? How cash and cash equivalents differ from  other current monetary assets? How cash and cash equivalents are reported  on balance sheet? How to manage cash asset?
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What is Cash?  Must be  READILY AVAILABLE  and be  FREE OF  RESTRICTIONS Consists of coins, currency, and available funds  on deposit at the bank, and petty cash Also includes money orders, certified cheques,  cashier’s cheques, personal cheques, bank  drafts, and usually savings accounts Postdated cheques, travel advances, and stamps  on hand are   NOT   classified as cash Cash equivalents, although often reported  together with cash, are NOT  classified as cash
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Cash Equivalents Defined as “short-term, highly liquid investments that  are readily convertible to known amounts of cash… subject to an insignificant risk of change in value.” Original maturity is generally three months or less Examples : treasury bills (T-bills), money-market funds,  commercial papers, certificate of deposits (CDs), etc. Often reported at  FAIR VALUE Differences between carrying and fair value reported on  Differences between carrying and fair value reported on  Income Statement Income Statement In practice, the fair value is generally the same as the cost (or  cost plus accrued interest) because of the short-horizon of the  investment Balance sheet presentation: Balance sheet presentation: Reported together with cash Reported together with cash  on balance sheet as “cash and   on balance sheet as “cash and  cash equivalents” cash equivalents” Firms should fully disclose how they define cash equivalents
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Cash Equivalents –Cautions Cash equivalents are not cash Allow investors to earn interests Usually there are restrictions/penalties when they are  converted to cash Cash equivalents, short-term investments, and held-for- trading investments In essence cash equivalents is a type of short-term  investments
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This note was uploaded on 04/27/2010 for the course ADMS 3585 taught by Professor Sandra during the Spring '10 term at York University.

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ADMS3585Winter 2010 Ch7 slides - CHAPTER 7...

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