07CashAndReceivables

07CashAndReceivables - Intermediate Financial Accounting I...

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Unformatted text preview: Intermediate Financial Accounting I Cash and Receivables Cash and Receivables 2 Objectives of this Chapter I. Discuss the asset valuation methods. II. Identify items to be included in the cash account and discuss how cash and related items are reported. III.Explain accounting issues related to valuation of accounts receivables -- trade discount, sales discount, sales returns and allowance, and uncollectible accounts. Cash and Receivables 3 Objectives of this Chapter (contd.) IV.Discuss the means to use accounts receivable as a financial instrument -- pledge, assign and factor. V. Discuss the valuation of notes receivable and the disposition of notes receivable. Cash and Receivables 4 I. Assets Valuation Methods A. Acquisition Cost (Historical Cost) : Used in the initial recording for all assets except for: 1. Investment in debt securities-held-to- maturity. 2. Long-term monetary assets (i.e., Long- term N/R). B . Current Entry Value (Replacement Cost): Applied in the inventory valuation (LCM). Cash and Receivables 5 Assets Valuation Methods (contd.) C. Current Exit Value (net selling price or market value): Applied in the valuation of trading securities and securities- available-for-sale. D. Net Present Value : Applied in the valuation of investment in debt securities-held-to-maturity and long-term monetary assets. Note: SFAS 159 allows the fair value option for financial assets and liablitlieis . Cash and Receivables 6 Cash and Receivables ■ Liquidity: The amount of time expected to elapse until an asset is converted into cash. ■ Liquid assets: Assets are available for conversion into cash quickly (i.e., cash, receivables, trading securities, etc..). ■ Liquidity is an indication of a company’s ability to meet its obligation. Cash and Receivables 7 II. Cash ■ What are included in the cash account? A.Cash on hand : B.Cash in bank : Cash and Receivables 8 Cash (contd.) ■ What are excluded from the cash account (source: FRR No. 1): ◆ Foreign currency with severe restrictions - separate cash account. ◆ Certificates of deposits (CDs) - Temporary Investments. ◆ Bank overdrafts - current liabilities (i.e., A/P) unless available cash is present in another account in the same bank (offsetting is required in this case). Cash and Receivables 9 Cash (contd.) ■ What are excluded from the cash account (source: FRR No. 1): ◆ Postdated checks- Receivables. ◆ IOUs - Receivables. ◆ Travel Advances - Prepaids. ◆ Employees’ Advances - Receivables. ◆ Postage stamps -Office supplies. ◆ Special purpose funds - Investments. ◆ Compensating balances - Restricted cash. ◆ Short-term paper a (i.e., commercial paper) - S-T investments. a. Investments with maturity of 3 to 12 months. Cash and Receivables 10 Restricted Cash ■ Compensating balances are examples of restricted cash which may require separate reporting....
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This note was uploaded on 02/28/2012 for the course BUSINESS 101 taught by Professor Smith during the Spring '08 term at UCLA.

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07CashAndReceivables - Intermediate Financial Accounting I...

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