CHAPTER 7 Cash and Receivables

CHAPTER 7 Cash and Receivables - 7-1CHAPTER 7Cash and...

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Unformatted text preview: 7-1CHAPTER 7Cash and Receivables7-2LECTURE OUTLINEChapter 7, the first of six asset chapters, covers cash, accounts receivable, and notesreceivable. Temporary investments (marketable securities) are discussed later inChapter 18 along with long-term investments.This chapter can be covered in two class sessions. With the exception of transfers ofreceivables with and without recourse, students should have had previous exposure tothe chapter concepts in an elementary accounting course.The following lecture outline is appropriate for this chapter.A. Cash and receivables represent two of the most liquid of assets. Liquidityis anindication of an enterprise’s ability to meet its obligations as they come due.B. Cash.1.Includes coin, currency, bank deposits including checking and savingsaccounts, and negotiable instruments such as money orders, cashiers’ checks,personal checks, and bank drafts.2.Postdated checks and I.O.U.sshould be reported as receivables. Traveladvances to employeesshould be reported as receivables or as prepaidexpenses. Postage stamps on handshould be reported as office supplies oras prepaid expenses. Petty cash funds and change fundsshould beincluded in cash.3.Bank overdraftsshould be reported as current liabilities. They are not offsetagainst the cash account unless there is available cash in another account atthe same bank.4.Restricted cash.7-3a.Cash restricted for some special purpose (such as the retirement of bonds)is reported separately in either the currentasset section or thenoncurrentasset section of the balance sheet, depending on the date ofavailability or disbursement.b.The SEC recommends that legally restricted deposits held ascompensating balancesagainst borrowing arrangements be reportedseparately in either the currentasset section or the noncurrentassetsection, depending on whether the borrowing arrangement is short-term orlong-term.5.Cash equivalents.a.This category includes items that are both (1) readily convertible to knownamounts of cash, and (2) so near their maturity that they presentinsignificant risk of changes in interest rates (generally 3 months or less).b.Money market funds, money market savings certificates, certificates ofdeposit, and similar types of deposits are nearly "equivalent to cash" interms of liquidity. However, these securities usually contain restrictions orpenalties on their conversion to cash. These items should be reported astemporary investments.c.Many companies now report these items in a current asset category calledcash and cash equivalents,which includes cash plus these items.6.Many control proceduresexist for cash transactions. Two that are discussedin the Appendices are the imprest petty cash system and the preparation ofbank reconciliations....
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This note was uploaded on 01/10/2011 for the course FSD 201 taught by Professor Huong during the Spring '10 term at Beacon FL.

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CHAPTER 7 Cash and Receivables - 7-1CHAPTER 7Cash and...

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