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Cash and Receivables

QuestionAnswer
cash currency and coins, balances in checking, items acceptable for deposit in these accounts. readily available to pay off debt or to use in operations
cash equivalents money market funds, treasury bills, commercial paper. must have a maturity date no longer than 3 months from the date of purchase. also credit and debit card receivables.
internal control companys plan to 1)encourage adherence to company policies and procedures 2)promote operational efficiency 3)minimize errors and theft and 4)enhance the reliability and accuracy of accounting data
separation of duties individuals that have physical responsibility for assets should not also have access to accounting records
compensating balances compensate the bank for granting the loan or extending the line of credit
receivables represent a company's claims to the future collection of cash, other assets or services
accounts receivable resulting from the sale of goods or services on account (trade receivables)
trade discounts a way to change prices w/out publishing them or even to disguise them form competitors
cash discounts reduce the amount to be paid if remittance is made w/in a specified short pd of time
gross method views cash discounts not taken as part of sales revenue
net method sales revenue is the net amount, after discount and any discounts not taken by the customer as interest revenue
bad debt expense inherent cost of granting credit
net realizable value amount of cash the company actually expects to receive from their customers
allowance method application of matching in accounting for bad debts
income statement approach balance sheet amount is an incidental result of estimating bad debt expense as a percentage of net credit sales
balance sheet approach determine BDE by estimating the net realizable value of AR to be reported in the BS
AR aging schedule classifies the year-end balances according to their length of time outstanding - assumes older accounts are more likely to prove uncollectible
notes receivable formal credit arrangements between a lender and a borrower
interest-bearing notes face amount x annual rate x fraction of annual period
noninterest-bearing note interest is discounted from the face amount to determine the cash proceeds made available to the borrower at the outset
Created by: cc4661