CAPITULO 7 INTERMEDIA

CAPITULO 7 INTERMEDIA - Chapter 7 Cash and Receivables...

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1 Bank overdrafts usually occur because of a simple oversight by the company writing the check. Banks often expect companies to have overdrafts from time to time and therefore negotiate a fee as payment for this possible occurrence. However, at one time, E.F. Hutton (USA) (a large brokerage firm) began intentionally overdrawing its accounts by astronomical amounts—on some days exceeding $1 billion—thus obtaining interest-free loans that it could invest. Because the amounts were so large and fees were not negotiated in advance, E.F. Hutton came under criminal investigation for its actions. CHAPTER 7 CASH AND RECEIVABLES This IFRS Supplement provides expanded discussions of accounting guidance under International Financial Reporting Standards (IFRS) for the topics in Intermediate Accounting. The discussions are organized according to the chapters in Intermediate Accounting (13 th or 14 th Editions) and therefore can be used to supplement the U.S. GAAP requirements as presented in the textbook. Assignment material is provided for each sup- plement chapter, which can be used to assess and reinforce student understanding of IFRS. BANK OVERDRAFTS Bank overdrafts occur when a company writes a check for more than the amount in its cash account. Companies should report bank overdrafts in the current liabilities section, adding them to the amount reported as accounts payable. If material, companies should disclose these items separately, either on the face of the statement of financial position or in the related notes. 1 Bank overdrafts are included as a component of cash if such overdrafts are re- payable on demand and are an integral part of a company’s cash management (such as the common practice of establishing offsetting arrangements against other accounts at the same bank). [1] Overdrafts not meeting these conditions should be reported as a current liability. IMPAIRMENT EVALUATION PROCESS For many companies, making appropriate allowances for bad debts is relatively straightforward. The IASB, however, provides detailed guidelines to be used to as- sess whether receivables should be considered uncollectible (often referred to as impaired ). Companies assess their receivables for impairment each reporting period and start the impairment assessment by considering whether objective evidence indicates that one or more loss events have occurred. Examples of possible loss events are: 1. Significant financial problems of the customer. 2. Payment defaults. 3. Renegotiation of terms of the receivable due to financial difficulty of the customer. 4. Measurable decrease in estimated future cash flows from a group of receivables since initial recognition, although the decrease cannot yet be identified with individual assets in the group. A receivable is considered impaired when a loss event indicates a negative impact on
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CAPITULO 7 INTERMEDIA - Chapter 7 Cash and Receivables...

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