Chapter 7 Outline

Chapter 7 Outline - Chapter 7 Outline: Cash And Receivable:...

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Chapter 7 Outline: Cash And Receivable: What is Cash? Cash – most liquid of assets – standard medium of exchange – basis for measuring and accounting for all other items – generally a current asset – consists of coins, currency, and available funds on deposit at the bank, money orders, certified checks, cashiers checks, personal checks, and bank drafts, savings accounts Companies treat postdated checks and IOU’s as receivables – they treat travel advances IF collected from employees or deducted form their salaries, otherwise they are treated as a prepaid expense. Postage stamps on hand are classified as part of office supplies inventory or as a prepaid expense Because petty cash funds and change funds are used to meet current operating expenses and liquidate liabilities, companies include these funds in current assets as cash. Reporting Cash: Some issues with cash require special attention, these are: 1. Cash equivalents 2. Restricted Cash 3. Bank Overdrafts 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. 3 moths or less Examples include: treasury bills, commercial paper, and monkey market funds – some companies combine cash with temporary investments on the balance sheet described (parenthetically) or in the notes ** It appears likely that FASB will eliminate the cash-equivalent classification from financial statements all together – companies will not report only cash – if it is not cash and is short term in nature then it will be reported as a temporary investment Restricted Cash: Petty cash, payroll, and dividend funds are examples of cash set aside for a particular purpose – in most situations these funds are NOT MATERIAL – companies segregate restricted cash from “regular” cash for reporting purposes – companies report restricted cash in either the current assets or in the long-term assets section Cash classified in the long-term section is usually set aside for plant expansion, retirement or long –term debt, or for entry fee deposits Compensating Balances are the minimum requirement that you have to have in your savings or checking account Bank Over Drafts:
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Bank over drafts occur when a company writes a check for many than the amount in its cash account – companies should report overdrafts in the current liabilities section, adding them to the amount of accounts payable *** if it is material, companies should report these items separately Summary of Cash-Related Items
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Chapter 7 Outline - Chapter 7 Outline: Cash And Receivable:...

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