ACCT 3110 CH 7

ACCT 3110 CH 7 - Accounting 3110: Exter nal Financial Repor...

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Unformatted text preview: Accounting 3110: Exter nal Financial Repor ting I Chapter 7: Cash and Receivables (include appendix over bank reconciliations) Cash and Cash Equivalents Balances in checking accounts Currency and coins Cash equivalents are short-term, highly liquid investments that can be readily converted to cash. M oney mar ket funds Tr easur y bills Commer cial paper Cash I tems for deposit such as checks and money orders from customers Restricted Cash Restricted Cash Managements intent to use a certain amount of cash for a specific purpose future plant expansion, future payment of debt. Cash Classifications Current asset: Cash - no restrictions. Short-term investment if restricted cash and restriction will be lifted in next year. Noncurrent asset: Long-term investment if cash is intended for some specific use. Disclosures Related to Cash Postdated Checks Postdated checks received from a customer show as a receivable on the balance sheet (current asset). Postdated checks written by the company shown as cash and corresponding liability in current liabilities. Bank Overdrafts Reported as accounts payable in the current liabilities section of the balance sheet. Accounts Receivable Amounts due from customers for credit sales. Credit sales require: maintaining a separate account receivable account for each customer. accounting for bad debts that result from credit sales . Accounts Receivable Amounts due from customers for credit sales. Benefit: increase revenues and net income. Expense: bad debts or uncollectible accounts from customers . Uncollectible Accounts Receivable Matching Principle: record expense in the same accounting period as the revenue it helped generate is recorded. Bad Debt Expense: cost of having extended credit to customers . must be recognized in same accounting period as credit sale is recorded . Accounting for Accounts Receivable Accounts Receivable Total amount that customers owe a company for goods/services purchased on credit. AR (historical cost) Less: Allowance for doubtful accounts = Net (cash) realizable value (NRV) Allowance for Uncollectible Accounts Net realizable value is the amount of the accounts receivable that the business expects to collect. Accounts Receivable Less: Allowance for Doubtful Accounts Net Realizable Value Income Statement Approach Balance Sheet Approach Percentage of Total Receivables Aging of Receivables I ncome Statement Approach Focuses on past cr edit sales to make estimate of bad debt expense. Emphasizes the matching pr inciple by estimating the bad debt expense associated with the cur r ent per iods cr edit sales....
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ACCT 3110 CH 7 - Accounting 3110: Exter nal Financial Repor...

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