Chapter 7 - Handout - Mervat Saleh CA CHAPTER 7 CASH AND...

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Unformatted text preview: Mervat Saleh, CA CHAPTER 7 CASH AND RECEIVABLES A. Financial asset o A cash; 0 A contractual right to receive cash or another financial asset; o A contractual right to exchange financial instruments with another party under conditions that are potentially favourable; 0 Or an equity instrument of another entity. B. Cash 1. Cash includes currency, bank deposits, chequ 2. Bank overdrafts‘ 3. Restricted cash. 3. Restricted for some special purpose. b. Reported separately in either current or non-current asset. c. Compensating balances against borrowing arrangements or long-term one. 4. Cash equivalents 3. Deposit, money market funds, and treasury bills b. IFRS allows some equity investments, such as preferred shares 0. Short-term investment certificates. C. Receivables: 1. Accounts receivable 2. Notes receivable Mcrvat Saleh, CA |- Accounts Receivable—Recognition and Measurement Issues. 1. Trade discounts. 2. Cash discounts (sales discounts). a. Gross method b. Net method. 3. Interest element. ll—Accounts Receivable—Impairment Issues. 0 Receivables are valued at net realizable value 1. Methods of accounting for uncollectible accounts: a. Allowance method 0 An estimate is made from uncollectible accounts. 0 Year-end adjusting entg for bad debts. Bad Debt Expense . . . . . . . . . . . . . . . . XXX Allowance for Doubtful Accounts . . . . . . . XXX 2. Procedures for estimating realizable value of accounts receivable: 3. Aging of accounts Receivable -Analyzing the Accounts Receivables balances. - An entry is made to adjust the allowance account b. Percentage-of-sales method — estimate the bad debt expense by Using an estimate of bad debt as a percentage of sales. 4. Allowance for sales returns and allowances is another example of a valuation allowances (contra assets) that may be established. Mervat Saleh, CA ACCOUNTS RECEIVABLE (1) Beginning ALLOWANCE FOR DOUBTFUL ACCOUNTS (2) Beginning balance XXX Balance XXX (3) Credit (4) Collections (5) Write-offs of sales XXX - on account XXX uncollectible accounts XXX (5) Write-offs (6) Year-end of uncol- adjusting entry lectable for bad debts XXX accounts XXX (7) Ending (8) Ending balance XXX balance o Write-offs of uncollectible accounts. Allowance for Doubtful Accounts . . . . . . . . . ' XXX Accounts Receivable . . . . . . . . . . . . . XXX lll- Notes Receivable—Valuation Issues 1. Notes should be reported at net realizable value. 2. Defaulted notes should be written off as a loss. IV- Long-term Notes and Loans receivable Interest-bearing debt instruments: the company holding the security on the interest payment date receives all the interest since the last interest payment date. Non-interest-bearing debt instruments, the difference between the security’s purchase price and its face, or maturity value, represents the interest income. V- Accounts and Notes Receivable—Derecognition Issues. e !n order to accelerate the receipt of cash from receivables, they may be transferred to a third party for cash. 1. Secured borrowing. The owner of the receivables borrows cash from a bank or another company by designating the accounts receivable as collateral. Mervat Saleh, CA 2. Sale (factoring): a. Transfer without recourse: The purchaser assumes the risk of collectability and absorbs the credit losses. b. Transfer with recourse—The seller guarantees payment to the purchaser for those receivables that become uncollectible. SALE (FACTORING) OF RECEIVABLES Accounts Receivable Are Transferred Transfer without Transfer with Recourse Recourse Report as Sale Does it meet three conditions? 1. Transferor surrenders benefits. 2. Transferor's obligation can be reasonably estimated 3. Transferee cannot require Reduce Receivable repurchase. Record Gain or Loss YES NO Report as Sale Report as Secured Borrowing Reduce Receivable Increase Liability Record Gain or Loss Record interest Expense Mervat Saleh, CA Vl- Presentation, Disclosure and Analysis of Receivables o Segregating and disclosure of the different receivables, o Allocation between current and long-term, 0 Disclosure of nature and carrying value of pledged or securitized receivables. o Securitization or transfer of receivables, whether derecognized or not. 0 lFRS requires more extensive information. o In evaluating the liquidity of receivables, the receivable turnover ratio is used. ...
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Chapter 7 - Handout - Mervat Saleh CA CHAPTER 7 CASH AND...

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