ACC 321- Exam #2 Study Guide

ACC 321- Exam #2 Study Guide - ACC 321 Midterm 2 study...

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Structure for critically evaluating an accounting issue with cash Economics- Analyze economics including cash flows of transactions or events Recognition- No reason not too recognize. It’s relevant, reliable, and easy to measure Measurement- No measurement issues Disclosure – restricted cash/must keep a certain cash balance. More clarity on the underlying Economic events Analysis Cash-definition, reporting - We receive cash from customers, lenders, or investors. - Other business decisions that include cash are if there is too little cash= liquidity=> bankruptcy. - Want sufficient amount of cash, but not too much Accounts receivable Recognition (similar to sales), valuation (uncollectible accounts—entry and computation), disposition including sales of receivables -Claims to cash from a customer for delivering them goods and services -Account vs. Notes is that notes are longer and interest is tied to it (more formal_ -Accounts receivables have a time value of money and they aren’t recorded at their time value of money (present value) so we are ignoring the time value of money -From a business perspective, Accounts Receivable is not something you want, but is something you cannot run a business without. It improves competitiveness. The goal is to collect as fast as possible so there is not interest tacked on - Cash outflow for Receivables = inventory, goods, or services which still costs money to deliver the goods/services/ Reasons why you want to collect cash as long as possible. Cash out and cash in should be close to manage money - Cash Inflows for receivables = 1) collecting cash. Ex) clothing manufacture makes spring line in the winter, way before they receive cash for the clothes. Also you can 2) sell receivables (buyer is financial institution) to collect cash earlier - Percentage of Sales (Income Statement)- Sales Bad Debt Expense - Percentage of Receivables (Balance Sheet)- Accounts Receivable Allowance for Bad Debt - Assigned Receivables- used for collateral for the basis as a loan to borrow money on the receivables. Borrowing Money -Factor Receivables- used for selling to a financial institution because you need the cash (liquidity) now. You are charged though so you receive less than the receivables are worth - Ex) Clothing Industry- pay cash upfront for spring clothing line in the winter, money won’t be seen until then) - With Recourse- Still have liability. Can come against me if receivables don’t come. Factor may not charge as much money -Without Recourse- No liability. They are out of your hands so you may be charged a higher price because there isn’t any risk. Any money left at the end of the day (set up a reserve) and see. Adjust later on (for Accrual Accounting)
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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.

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ACC 321- Exam #2 Study Guide - ACC 321 Midterm 2 study...

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