ch07 student - Chapter 7: Cash and Receivables 1 u Most...

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Unformatted text preview: Chapter 7: Cash and Receivables 1 u Most liquid asset u Standard medium of exchange u Basis for measuring and accounting for all items u Current asset u Examples : coin, currency, available funds on deposit at the bank, money orders, certified checks, cashiers checks, personal checks, bank drafts and savings accounts. u Cash equivalents u Examples: Treasury bills, Commercial paper, and Money market funds. What is Cash? LO 1 Identify items considered cash. 2 Companies segregate restricted cash from regular cash. Examples , restricted for: (1) plant expansion, (2) retirement of long-term debt, and (3) compensating balances. Reporting Cash LO 2 Restricted Cash Illustration 7-1 3 Company writes a check for more than the amount in its cash account. Reporting Cash LO 2 Indicate how to report cash and related items. Bank Overdrafts u Generally reported as a current liability . u Offset against other cash accounts only when accounts are with the same bank. 4 Summary of Cash-Related Items LO 2 Illustration 7-2 5 Accounts Receivable Written promises to pay a sum of money on a specified future date. LO 3 Define receivables and identify the different types of receivables. Receivables- Claims held against customers and others for money, goods, or services. Oral promises of the purchaser to pay for goods and services sold. Accounts Receivable Notes Receivable 6 Nontrade Receivables 1. Advances to officers and employees. 2. Advances to subsidiaries. 3. Deposits to cover potential damages or losses. 4. Deposits as a guarantee of performance or payment. 5. Dividends and interest receivable. 6. Claims against: Insurance companies for casualties sustained; defendants under suit; governmental bodies for tax refunds; common carriers for damaged or lost goods; creditors for returned, damaged, or lost goods; customers for returnable items (crates, containers, etc.). Accounts Receivable LO 3 Define receivables and identify the different types of receivables. 7 Nontrade Receivables Accounts Receivable LO 3 Define receivables and identify the different types of receivables. Illustration 7-3 8 Recognition of Accounts Receivables u Reductions from the list price u Not recognized in the accounting records u Customers are billed net of discounts LO 4 Explain accounting issues related to recognition of accounts receivable. 10 % Discount for new Retail Store Customers Trade Discounts 9 Recognition of Accounts Receivables u Inducements for prompt payment u Gross Method vs. Net Method LO 4 Explain accounting issues related to recognition of accounts receivable. Cash Discounts Payment terms are 2/10, n/30 10 E7-5: On June 3, Bolton Company sold to Arquette Company merchandise having a sale price of $2,000 with terms of 2/10, n/60, f.o.b. shipping point. On June 12, the company received a check for the balance due from Arquette Company. Prepare the journal entries on Bolton Company books to record the sale assuming Bolton records sales using the gross method ....
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This note was uploaded on 03/01/2012 for the course FIN 3154 taught by Professor Jceasterwood during the Spring '08 term at Virginia Tech.

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ch07 student - Chapter 7: Cash and Receivables 1 u Most...

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