320 Lesson 5a

320 Lesson 5a - Week5Cha7 CashandReceivables Terms...

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Cash and Receivables Week 5 - Cha7
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Terms associated with cash Restricted cash balances Cash equivalents Overdraft Compensating balances Foreign currency Do E7-2
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Internal control of cash Risk of theft directly related to individual’s access to the accounting system basic rule – division of duties
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Bank Reconciliation Ensure that company records for cash agree with the bank’s Start with cash balance on books Add/subtract info the bank knows that you didn’t e.g. service charges, returned cheques, authorized payments Arrive at ‘correct’ cash balance Start with bank balance Add/subtract info the you know that the bank doesn’t e.g. most recent deposit, cheques that haven’t cleared the bank yet, etc. Arrive at ‘correct’ cash balance Two balances should be the same Do E7-25
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E7-25 May 31, 20x9 Balance per books 9,370 Add: Deduct: Balance per bank 8,760 Add: Deduct: Correct cash balance Correct cash balance
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Journal entries for the company Cash 1,000 Note receivable 1,000 Accounts receivable 335 Cash 335 NSF cheque Bank service expense 25 Cash 25
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Receivables Trade receivables
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Recognition and measurement Recognize when amounts are probable, measureable and collectible Cash discount (2/10, net 30) encourage early payment of account how record? Assuming discount will be taken? OR Ignoring discount and recording gross?
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Gross method Net method Sales of $10,000, terms 2/10, net 30 Accounts rec. 10,000 Accounts rec. 9,800 Sales 10,000 Sales 9,800 Payment of $4,000 received within discount period: Cash 3,920 Cash 3,920 Sales discount 80 Accounts rec. 3,920 Accounts rec. 4,000 Payment of $6,000 after the discount period: Cash 6,000 Accounts rec. 120 Accounts rec. 6,000 Sales disc. forfeited 120 Cash 6,000 Accounts rec. 6,000
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Sales returns and allowances Sales returns – return of goods after a sale Sales allowance – discount off sale price if goods are damaged or has some defect – no goods returned If returns are material and not measureable, need to delay the recognition of revenue Common to estimate returns: At year end: Sales returns and allowances 4,000 Allowance for sales returns and allow. 4,000 During the next year when returns occur: Allowance for sales returns and allow. 300 Accounts receivable 300
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Uncollectible accounts receivable When sell on credit, need to estimate potential uncollectibility
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This note was uploaded on 03/15/2012 for the course BUS 320 taught by Professor Maureenfizzell during the Spring '12 term at Simon Fraser.

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320 Lesson 5a - Week5Cha7 CashandReceivables Terms...

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