7: Cash & Cash Receivables

Question 0

What are Cash Equivalents

Answer 0

Short-term highly liquid investments with little risk like Money market funds, treasury bills, & commercial paper with a maturity date no longer than 3 months from the date of purchase.

Question 1

What is cash?

Answer 1

Currency, coins, balances in checking accounts, & items acceptable for deposits in these accounts.

Question 2

What is the Net Realizable Value of an asset?

Answer 2

The amount of cash the company expects to actually collect.

i.e. accounts receivable after allowance for bad debt.

Question 3

The Allowance Method to account for bad debt.

Answer 3

Records an adjusting entry that debits bad debt expense and reduces accounts receivables indirectly by crediting a contra account (allowance for in collectible accounts) to accounts receivable for an estimate if the amount that will eventually prove I collectible.

Question 4

In a sale of receivables without recourse in a factoring arrangement, the buyer…

Answer 4

can’t ask the seller for more money if the receivables proves uncollectible.

Question 5

For a Sale With Recourse, the company can still account for the sale as long as they estimate the fair value of…

Answer 5

it’s recourse obligation as a liability.

Question 6

When Accounts Receivables are sold ‘with recourse’…

Answer 6

The seller retains the risk of uncollectibility.

Question 7

The transfer of a Note to a financial institution is called?

Answer 7

Discounting

Question 8

What are the steps to calculate the cash proceeds received by the transferor when Discounting a Note?

Answer 8

1. Calculate accrued interest
2. Add accrued interest to Face value
3. Deduct Discount rate

Question 9

If the transferor is deemed to have surrendered control over the transferred receivables, the arrangement is accounted for as a?

Answer 9

Sale; otherwise as a secured borrowing.