Chapter+7+with+answers

Chapter+7+with+answers - Chapter 7: Cash and Receivables...

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Unformatted text preview: Chapter 7: Cash and Receivables Read: Chapter 7, Appendix 7A In-class Exercises: EX7-2, EX7-23, EX7-26, EX7-6, EX7-10, P7-5, EX7-16, EX7-17, EX7-19 Practices Exercises: P7-2, P7-6, EX7-7, EX7-15, EX7-24, EX7-25 1 Cash 1. Cash is reported as a current asset if it is readily available to pay current obligations and is free of restrictions 2. Cash consists of coins, currency, available funds on deposit at the bank, and petty cash 3. Also includes money orders, certified cheques, cashier’s cheques, personal cheques, bank drafts, and usually savings accounts 4. Postdated cheques, travel advances, and stamps on hand are not classified as cash 2 5. Reporting cash 6. Restricted cash • Disclose separately if material; current or noncurrent 7. Cash in foreign currencies • Amount held in foreign currencies is reported in Canadian dollars at the balance sheet date • The exchange rate on the balance sheet date is used to translate foreign currencies into Canadian dollars • If restrictions exist on the foreign funds, those funds are reported as restricted 8. 9. Bank overdrafts • Overdrafts represent cheques written in excess of the cash account balance • Overdrafts are reported as current liabilities (often reported as accounts payable) • In general, bank overdrafts should not be offset against the Cash account • However, bank overdrafts may be offset against available cash in another account if both accounts are at the same bank 10. 11. 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 • Excludes equity securities • Examples: treasury bills, money-market funds, commercial paper • Cash equivalents are reported at fair value 3 12. EX 7-2 1. Cash balance of $625,000. Only the chequing account balance should be reported as cash. The certificate of deposit of $1,100,000 should be reported as a temporary investment, the cash advance to subsidiary of $980,000 should be reported as a receivable, and the utility deposit of $180 should be identified as a receivable from the gas company. 2. Cash balance is $484,650 calculated as follows: Chequing account balance $500,000 Overdraft (17,000) Petty cash 300 Coin and currency 1,350 $484,650 Cash held in a bond sinking fund is restricted. Assuming that the bonds are noncurrent, the restricted cash is also reported as noncurrent. 3. Cash balance is $549,800 calculated as follows: Chequing account balance $540,000 Certified cheque from customer 9,800 $549,800 The postdated cheque of $11,000 should be reported as a receivable. Cash restricted due to compensating balance requirement should be reported separately and classified as current or non-current (depending on the nature of the arrangement) and described in a note indicating the type of arrangement and amount. Postage stamps on hand are reported as part of office supplies or prepaid expenses.as part of office supplies or prepaid expenses....
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This note was uploaded on 12/12/2010 for the course ACTG 2P31 taught by Professor Pacharn,p during the Fall '10 term at Brock University, Canada.

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Chapter+7+with+answers - Chapter 7: Cash and Receivables...

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