Ch7_Class_Outline - Chapter 7 page 1 of 16 Chapter 7: Cash...

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Chapter 7 page 1 of 16 Chapter 7: Cash and Receivables (Responsible for Text and Appendix) Course Objectives : Review accounting cycle: Chapters 1-3 Review financial statements: Chapters 4 and 5 Introduce time value of money concept: Chapter 6 Discuss accounting for cash and receivables: Chapter 7 1) What is Cash? : a b c d Examples : coins, currency, available funds in bank accounts, money orders, certified checks, cashier’s checks, personal checks, bank drafts, and savings accounts. e Temporary Investments : i) Not classified as cash because typically include restrictions/penalties on conversion to cash. ii) Examples : Money market funds, money market savings certificates, certificates of deposit (CDs) iii) Exception : Money market funds that provide checking account privileges are classified as cash. f Problem areas : i) Postdated checks and I.O.U.s : Classify as ___________________________ . ii) Travel advances : Classify as __________________ if advances are to be collected from employees or deducted from salaries. Otherwise , classify as ___________________________ . iii) Postage stamps on hand : Classify as part of _________________________ or as a ____________________________ . iv) Petty cash funds and change funds : Classify as __________ because these funds are used to pay for current operating expenses or to eliminate current liabilities. 2) Management and Control of Cash : a Two problems: i) Must have proper controls to ensure officers/employees do not use cash for unauthorized transactions. ii) Must have proper record-keeping to ensure information is maintained on cash transactions. b Effective internal controls are key! c Appendix discusses some basic control procedures to ensure cash is reported correctly.
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Chapter 7 page 2 of 16 3) Reporting Cash : a Restricted Cash : i) Definition : ii) Reporting : (1) If immaterial, _______________________________________________. If material, _________________________________________________. (2) Classify as current assets if cash is going to be used within year/operating cycle or long- term assets if cash is to be held for longer than a year/operating cycle. iii) Long-term restricted cash examples : cash set aside for plant expansion or retirement of debt. iv) Compensating Balances : Minimum cash balances required by banks and other lending institutions to be maintained in checking/savings accounts. (1) Legally restricted deposits for short-term borrowing : State separately among “Cash and cash equivalent items” in current assets. (2) Legally restricted deposits for long-term borrowing : State separately as noncurrent assets in either investments or other asset section. Can call “Cash on deposit maintained as compensating balance.” (3) If compensating balances exist without agreements restricting use, the arrangements and amounts should be described in the notes. If compensating balances are maintained to assure future credit availability, amounts and duration of agreement must be disclosed
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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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Ch7_Class_Outline - Chapter 7 page 1 of 16 Chapter 7: Cash...

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