Cash & A/R Flashcards
Cash equivalents
- coin or cash on hand
- claims to cash like checks, money orders, or bank drafts
- money market funds
- savings accounts
- checks written by firm, but mailed after financial statement date
Not cash
- certificates of deposit
- compensating balances
- overdrafts
- check with a future date/post dated check
- bond sinking fund
- escrow accounts/restricted accounts
FOB Shipping Freight Charges
Buyer is responsible for paying for the freight
FOB Destination Freight Charges
Seller is responsible for paying for the freight
When you have different Banks
You can net the accounts in one bank together, but not for separate banks
Marketable Securities & Cash
Marketable securities are not cash equivalents
When you see something held for resale or to be sold the following year
It would be considered a current asset
Balance Per Bank
+ Deposits in Transit
+ Cash on Hand
- Outstanding Checks
+/- Errors
Balance Per Books
\+ Interest Earned \+ Note Collected - Service Charges - NSF Checks \+/- Errors
Calculating Disbursements
Subtract last month’s outstanding checks from current month’s Disbursements and then add current month’s outstanding checks
Cash Balance Per Books with last month’s banking information
- Subtract last month’s deposits in transit from current month’s Deposits
- Subtract last month’s outstanding checks from current month’s Disbursements
- Add Balance per books end of last month and current month’s deposits then subtract current month’s disbursements
Accounts Receivable with Inventory Information
- Find COGS and if company began operations that year, there is no beginning inventory
- Multiply COGS by markup (1.4) to find credit sales
- Subtract collections from credit sales
Direct Write Off Method - Bad debt expense & Recovered
Bad Debt Expense
—–Accounts Receivable
Cash
—–Bad Debts Recovered
Allowance Method - Write Off
Allowance for Doubtful Accounts
———Accounts Receivable
Allowance Method - Recovery
Accounts Receivable
—–Allowance for Doubtful Accounts
Cash
—–Accounts Receivable
Allowance Method - End of period adjustment
Bad Debt Expense
—–Allowance for Doubtful Accounts
Claims against shipper or other things
Counts as a Receivable because you are making a dispute/claim to potentially be paid back
Allowance balance when you have Ending A/R (gross) and Net Realizable value or Aging ending A/R (net)
The difference between them is the balance for allowance for doubtful accounts at the end of the year
% of Accounts Receivable uncollectible
It would equal ending balance for Allowance account
Accrued Interest Receivable for a Note
Use the face amount and its % to calculate
Total Interest Revenue for Note Receivable
Total annual payments minus the present value of the note
Sale of A/R with recourse
Transferor is still responsible if transferee defaults
Sale of A/R without recourse
Transferee assumes full responsibility
Sale of Accounts Receivable if things go well
Cash
—–Accounts Receivable
Also gain or loss
- Firm factors $20,000
- 5% factor charges & 3% holdback
- Without recourse
Cash 18,400(20,000[1-5%-3%])
Receivable from Factor 600(20,0003%)
Loss on Sale of Receivables 1,000(20,0005%)
—–Accounts Receivable 20,000
Sales Returns & Allowances 600
———-Receivable from Factor 600
- Firm factors $20,000
- With Recourse
- 2% factor charge
- Liability for bad debts is $1,000
Cash 19,600(20,0002%)
Loss on Sale of Receivables 1,400([20,0002%] + 1,000)
———-Accounts Receivable 20,000
———-Recourse Liability 1,000
- Firm factors $20,000
- With Recourse
- 2% factor charge
- Liability for bad debts is $1,000
- Does not meet criteria for sale
Cash $20,000(1.00 − .02) 19,600
Discount on Factor Liability $20,000(.02) 400
—–Factor Liability 20,000
Allowance for Doubtful Accounts 1,000
—–Accounts Receivable 1,000
Factor Liability 20,000
—–Accounts Receivable 19,000
—–Cash (to pay for uncollectible accounts) 1,000
Interest Expense 400
—–Discount on Factor Liability 400
Due from Factor & Recourse Liability
- Due from factor accounts for allowances, returns, and discounts
- Recourse liability is recorded to indicate probable uncollectible accounts
Factoring questions asking about total cash recorded
Include holdback fee
Cost of factoring fees
Does not include holdback fee
When note becomes impaired
Record a loss equal to Difference between carrying value of note and PV of cash flows expected to be received
When Journalized for A/R Factorization
- Holdback gets own line as a debit and other deductions are netted into cash received
- Cash received is A/R minus holdback & other deductions
