Chapter 7: Cash and cash equivalent

Monday, February 27, 2012 4:26 PM

On balance sheet, cash consists of - Currency and coins on hand - Checks and money orders - Deposit in checking and savings accounts

Receivable turnover = Net revenue/ average accounts receivable (times) -> Accounts receivable small to get receivable revenue big, as cash goes on hand as much as possoble Days' sales uncollected = 365/ receivable turnover (days)

Financing receivables when companies are unwilling or unable to wait until they collect cash from their receivables - Set up finance companies to help customers pay for the purchase - Borrow funds by pledging their accounts receivables as collateral - Selling or transferring accts receivable to another entity Factoring: with recourse - seller of the receivables is liable to the factor if a receivable cannot be collected Without recourse - the factor bears any losses from unpaid accounts Securitization: company groups its receivables in batches and sells them at a discount to other companies or investors. Discounting: selling promissory notes held as notes receivable to a financial lender, usually a bank.

Investments have a term of <=90 days -> cash equivalents

Cash control payments - Imprest system: keep currency and coins on hands - Bank service: safe deposits EFT: conducting business transactions that does not involve the actual transfer of cash - Bank reconciliation Balance per bank (appear in company's records but not on its bank statement) Outstanding checks (-) Deposits in transit (+) Balance per book (appear in bank statement but not on its company's records) Service charges (-) NSF checks (-) Miscellaneous debits and credits Interest income (+) Collection fee (-)

Percentage of net sale method (income statement) Uncollectible account expense = percent x net sales = percent x (sales - sales returns and allowance - sales discount)

Accounts receivable aging method (balance sheet) Uncollectible accounts expense = targeted balance for allowance for uncollectible accounts

Notes receivable - Maker: notes payable - Payee: notes receivable

Notes for midterm (p333) reread the section ethics (p334) remember cash equivalents (p335) bank reconciliation problems ------> contents (p338) remember journal entries, the order Estimated net realizable value of accts receivable (p342) writing off an acct (p343) notes receivable (p346) accrued interest!!! Ratio calculations free form Calculate from financial statements free form

Cash equivalent include only certificates of deposit that mature within 90 days or less and they are stated at cost.

The direct write-off method requires a write-off of a specific debt when a customer fails to pay. The allowance method involves an estimation of a period's bad debts that is credited to the Allowance for Uncollectible Accounts account.

Balance sheet for account receivable

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