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ch07s - Chapter 7 Cash and Recievables Chapter 7 Key...

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Chapter 7 Cash and Recievables
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Chapter 7: Key Concepts Discuss the components of Cash & Cash Equivalents. Discuss Procedures for reporting Trade Discounts. Direct Write-off and Allowance Methods. Discuss various Notes Receivable Transactions – Face Value, Non- Interest, Interest Bearing Notes. Discuss dispositions of receivables. Accounting 301A-Eiler 2
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Defining Cash Cash on the Balance Sheet is defined as Cash plus Cash Equivalents. Cash : Currency and coins held, Checks and Money orders received, Bank account balances. Cash Equivalents : Money market funds, Short-term certificates of deposit, Treasury Bills (with original maturities of no longer than three months). Accounting 301A-Eiler 3
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Reporting Cash Cash and cash equivalents – Often combined and reported as the first (most liquid) “current asset”. Restricted cash - Cash restricted or “earmarked” for a specific purpose, such as a loan contract that requires the firm to maintain a certain cash balance. Note: Disclose as a long-term asset if it relates to long-term items (such as payment of L/T debt). Bank Overdrafts – Disclosed as a current liability unless there are other positive-balance cash accounts at the same bank that it can be offset against. Accounting 301A-Eiler 4
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Reporting Cash Accounting 301A-Eiler 5 Illustration 7-2
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Quick Review: Cash Balance Kraft Enterprises owns the following assets at December 31, 2010: What amount should Kraft report under cash and cash equivalents on the Balance Sheet? __94,300____ Accounting 301A-Eiler 6 Cash in Bank – Savings Account 68,00 0 Checking Account Balance 17,000 Cash on Hand 9,300 Postdated Checks 750 Cash Refund Due from IRS 31,40 0 Certificates of Deposit (180- day) 90,000
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Defining and Reporting Receivables Receivables – claims against customers for cash, goods, or services. Reporting – Split into Trade and Nontrade; Both are further split into Current and Noncurrent. Trade - Amounts owed by customers for goods purchased or services provided. Nontrade – Amounts owed from various parties; Not related to goods purchased or services provided. Accounting 301A-Eiler 7
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Nontrade Receivables: Examples 1. Advances to officers and employees. 2. Advances to subsidiaries. 3. Deposits to cover potential damages or losses. 4. Deposits as a guarantee of performance or payment. 5. Dividends and interest receivable. 6. Claims against: a) Insurance companies for casualties sustained. Defendants under suit. Accounting 301A-Eiler 8
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Receivables Account Receivable Verbal promises of the purchaser to pay for goods and services sold. Normally collectible within 30-60 days. Notes Receivable Written promises to pay a certain sum of money at a specified future date. Arise from a variety of transactions (i.e. not just trade) and may be short-term or long-term.
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