1321 Ch.7 - Click to edit Master subtitle style Lesson...

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School of Management Click to edit Master subtitle style Prepared by: Ellen Hamer Lesson Notes to Accompany Financial Management 1321 INTERMEDIATE ACCOUNTING Ninth Canadian Edition KIESO, WEYGANDT, WARFIELD, YOUNG, WIECEK Chapters 7-9
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School of Management Chapter 7 Cash and Receivables Financial Asset “Any asset that is: From CICA Handbook, Section 3856 (i) cash; (ii) a contractual right to receive cash or another financial asset from another party; (iii) a contractual right to exchange financial instruments with another party under conditions that What is Cash? Cash is reported as a current asset if it is readily available to pay current obligations and is free of restrictions Cash consists of coins, currency, available funds on deposit at the bank, and petty cash Also includes money orders, certified cheques, cashier’s cheques, personal cheques, bank drafts, and usually savings accounts Postdated cheques, travel advances, and stamps on hand are not classified as cash Reporting of Cash Reporting cash needs special attention of the following: Restricted cash Cash in foreign currencies Bank overdrafts Cash equivalents 27 - 2
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School of Management Restricted Cash Compensating balances: minimum cash balances maintained by a corporation in support of existing borrowings (Part of Bank loan restrictions) These funds are not available for use by the corporation, but the bank can use the restricted cash If the restricted cash balance is material, must be segregated from Cash as follows: Classified as current assets if they relate to short-term loans Classified as non-current assets if set aside for investment or financing purposes (e.g. plant expansion) Note disclosure of restricted cash is required 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 37 - 3
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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 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 Under IFRS some equity instruments can be classified as cash equivalents. For example, preferred shares acquired within a short time of their maturity and with a specified redemption date. 47 - 4
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This note was uploaded on 08/03/2011 for the course ACCT 1321 taught by Professor Doogie during the Spring '11 term at The University of British Columbia.

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1321 Ch.7 - Click to edit Master subtitle style Lesson...

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