3311Ch07 - Sommers ACCT3311 CHAPTER7 CashandReceivables...

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Sommers–ACCT 3311 1 CHAPTER 7 Cash and Receivables Cash and Cash Equivalents Balances in Currency Cash Items for deposit such as checking accounts and coins Cash equivalents are short term, highly liquid investments checks and money orders from customers that can be readily converted to cash. Money market funds Treasury bills Commercial paper
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Sommers–ACCT 3311 2 Internal Control Encourages adherence to company policie company policies and procedures Promotes operational efficiency Enhances the reliability and accuracy of Minimizes errors and theft accounting data Internal Control Procedures Cash Receipts Separate responsibilities for handling cash, recording cash transactions and reconciling cash balances transactions, and reconciling cash balances. Match the amount of cash received with the amount of cash deposited. Close supervision of cash handling and cash recording activities. Cash Disbursements Separate responsibilities for cash disbursement documents, check writing, check signing, check mailing, and record keeping. All disbursements, except petty cash, made by check. Checks should be signed only by authorized individuals.
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Sommers–ACCT 3311 3 Restricted Cash and Compensating Balances Restricted Cash Management’s intent to use a certain amount of cash for a specific purpose – future plant expansion, future payment of debt. Compensating Balance Minimum balance that must be maintained in a company’s bank account as support for funds borrowed from the bank. U.S. GAAP vs. IFRS In general, cash and cash equivalents are Bank overdrafts are treated as liabilities. treated similarly under IFRS and U.S. GAAP. One difference is highlighted below. Bank overdrafts may be offset against other cash accounts.
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Sommers–ACCT 3311 4 Accounts Receivable Result from the credit sales of goods or services to customers. Are classified as current assets. Are recorded net of trade discounts. increase sales Cash Discounts encourage early payment increase likelihood of collection Cash discounts collections
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Sommers–ACCT 3311 5 Cash Discounts 2/10,n/30 Number of Otherwise days discount is available Otherwise, net (or all) is due Credit period Discount percent Cash Discounts Gross Method Net Method Sales are recorded at the invoice amounts. Sales are recorded at the invoice amount less the discount . Sales discounts are recorded if payment is received within the discount period. Sales discounts forfeited are recorded if payment is received after the discount period.
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Sommers–ACCT 3311 6 Cash Discounts On October 5, Hawthorne sold merchandise for $20,000 with terms 2/10, n/30. On October 14, the customer sent a check for $13,720 taking advantage of the discount to settle $14,000 of the amount. On November 4 the customer paid the remaining $6 000 4, the customer paid the remaining $6,000.
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This note was uploaded on 09/30/2010 for the course ACCT 3311 taught by Professor Gregsommers during the Fall '10 term at Southern Methodist.

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3311Ch07 - Sommers ACCT3311 CHAPTER7 CashandReceivables...

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