2009 F-4 Class Notes

2009 F-4 Class Notes - Becker CPA Review Financial 4 Class...

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Becker CPA Review – Financial 4 Class Notes 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. FINANCIAL 4 CLASS NOTES Financial 4 includes the following: I. WORKING CAPITAL AND ITS COMPONENTS AND RELATED ISSUES A. Working Capital is a measure of the solvency of an entity. The Current Ratio and Quick Ratio are used for analysis purposes. B. Current assets and liabilities generally must meet the one year test. II. CASH AND CASH EQUIVALENTS A. Cash must be readily available . Cash equivalents are highly liquid debt securities with maturity dates within 90 days of the date purchased. The only occasion when time to maturity matters is at the purchase date. 1. Restricted cash must be segregated from other cash. B. Bank reconciliations reconcile ending balances per bank and book adding and subtracting items causing differences between the two balances. Outstanding items are adjustments on the bank side and adjusting journal entry information are adjustments on the book side. III. ACCOUNTS RECEIVABLE A. Valuing accounts receivable requires reductions for expected bad debts, expected sales returns & allowances and expected sales discounts. This results in a net accounts receivable balance approximating cash expected to be collected . 1. Sales discounts are offered to encourage earlier payment by customers. Sales and related receivables can be recorded either using the gross or theoretically preferred net method. 2. Trade discounts are applied sequentially and receivables are recorded net of any trade discount. B. Estimating Uncollectibles 1. Direct write-off method, used for tax, is not GAAP. 2. Allowance method is GAAP. The allowance for uncollectible accounts is a contra- asset. Percentage of sales method ( income statement approach ) determines bad debt expense as a percentage of sales or credit sales for the period. In the balance sheet approach
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This note was uploaded on 02/19/2011 for the course BMGT 360 taught by Professor Spina during the Spring '07 term at Maryland.

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2009 F-4 Class Notes - Becker CPA Review Financial 4 Class...

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