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Unformatted text preview: ACC 321- Chapter 7 Book Notes 28/02/2011 11:56:00 ← Chapter 7- Cash and Receivables ← ← What is Cash? Chart on (P322) • The most liquid of assets, is the standard medium of exchange and the basis for measuring and accounting for all other items. o A current asset (even saving accounts) o Companies treat postdated checks and I.O.Us as receivables, along with travel advances • Cash Equivalents o Short-term, highly liquid investments that are both o a) readily convertibles to known amounts of cash and o b) so near their maturity that they present insignificant risk of changes in interest rates ex) treasury bills, commercial paper, and money market funds o Can be misleading because, auction rate notes that decline in value can also occur with cash equivalents o FASB will only report cash on the Income Statement, and if its not cash and is short-term it is considered a temporary investment o If an item cannot be quickly converted to coin or currency, a company separately classifies it as an investment, receivable, or prepaid expense • Restricted Cash o petty cash, payroll, and dividend funds o separated from regular cash for reporting purposes o classified in either the current assets or in the long-term assets o Compensating Balances- minimum balances required by the SEC that portion any demand deposit maintained by a corporation which constitutes support for existing borrowing arrangements of the corporation with a lending institution o To avoid misleading investors about the amount of cash available to meet recurring obligations, the SEC recommends that companies state separately legally restricted deposits held as compensating balances against short-term borrowing among Cash and Cash Equivalent items in the Current Assets o Long- term borrowing is arranged in the non-current assets in the Investment section • Bank Overdrafts o Occur when a company writes a check for more than the amount in its cash account o Reported in the current liabilities section with accounts payable ← Receivables • Claims held against customers and others for money, goods, or services • Either current (short-term) or non-current (long-term) o Accounts receivables- oral promises of the purchaser to pay for goods and services sold o Notes Receivables- written promises to pay a certain sum of money on a specified future date o Non-trade Receivables- advances to officers, employees, subsidiaries, or deposits paid to cover potential damages o Also, dividends and interest receivables and claims against… o Recognition, valuation, and disposition Recognition of Accounts Receivable...
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This note was uploaded on 11/15/2011 for the course ACC 321 taught by Professor Staff during the Spring '08 term at Miami University.
- Spring '08