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Unformatted text preview: CHAPTER 7 RECEIVABLES 1. Recognition of accounts receivable 2. Valuation of accounts receivable 3. Recognition of notes receivable 4. Valuation of notes receivable 5. Special Issues: Fair value option, disposition of accounts and notes receivable, and presentation and analysis 6. IFRS Insights Cash: negotiable instruments (money orders, certified checks, cashiers checks, personal checks, bank drafts, savings accounts, money market funds that provide checking account privileges) o Treat postdated checks and I.O.U.s as receivables o Treat travel advances as receivables if collected from e mployees or deducted from their salaries Otherwise, classify travel advances as a prepaid expense o Postage stamps on hand classified as part of office supplies inventory or prepaid expense Issues in reporting cash o 1. Cash equivalents Short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates Original maturities of 3 months or less Ex: treasury bills, com mercial paper, money market funds FASB will eliminate the cash-equivalent classification from financial statements altogether Co mpanies will now report only cash and if an asset is not cash and is short-term in nature, it should be reported as a temporary investment o 2. Restricted cash When material in amount, segregate restricted cash from regular cash Either in current or long-term assets depending on the date of availability Long-term section is often set aside for plant expansion, retirement of long-term debt or entry fee deposits SEC defines these minimum balances required called compensating balances as that portion of any demand deposit maintained by a corporation which constitutes support for existing borrowing arrangements of the corporation with the lending institution. Such arrangements would include both outstanding borrowings and the assurance of future credit availability State separately legally restricted deposits held as compensating balances against short term borrowing arrangements among the cash and cash equivalent items in current assets Classify separately restricted deposits held as compensating balances against long-term borrowing arrangements as noncurrent assets in either the investments or other assets sections as cash on deposit maintained as compensating balance CHAPTER 7 RECEIVABLES o 3. Bank overdrafts When company writes a check for more than the amount in its cash account Report in the current liabilities section, adding them to the amount...
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- Fall '11