Cash / Cash Equivalents + Receivables Flashcards
Cash Equivalent
Short-Term
Highly liquid
readily convertible known amount of cash
Bears no interest rate risk
e.g. us treasury bills, notes and bonds, commercial paper, and money market funds, CD with original maturity 90 or less days
EXCLUDED: items leagally restricted (COD, bond sinking funs, compensating balances)
Cash Internal Controls
Separation of Duties - Custody, recording, reconciliation
Bank Recs
Bank overdrafts
U.S. - be shown as a liability
IFRS - can be netted against cash
Balance Per BOOKS
\+ Interest \+ Notes rec. collected by bank - Service charges - NSF \+/- Errors
Balance Per BANK
+ Deposits in Transit
+ Cash
- Outstanding Checks
+/- Errors
Gross Method (Recording Receivable)
$2,000 3/10, n30
DR: AR 2,000
CR: Sales 2,000
When Cash Collected within 10 days
DR: Cash 1,940
DR: Sales Discount 60
CR: AR 2,000
When Cash Collected AFTER the 10 days
DR: Cash 2,000
CR: Sales Discount Lost 0
CR: AR 2,000
NET Method (Recording Receivable)
$2,000 3/10, n30
DR: AR 1,940
CR: Sales 1,940
(60$ discount)
When Cash Collected within 10 days
DR: Cash 1,940
CR: AR 1,940
When Cash Collected AFTER the 10 days
DR: Cash 2,000
CR: Sales Discount Lost 60
CR: AR 1,940
Sales Returns and Allowances (contra to sales)
DR: S R&A
CR: AR
Objective - Estimating uncollectible accounts
- To match bad debt expense with revenues
2. State the AR at NRV on the balance sheet
Direct Write-off Method
Does NOT match expenses with revenues - Rarely used
DR: Bad Debt Expense
CR: AR
Allowance Method
Contra to AR
Matching and valuation of AR @ NRV
Income Statement Approach
Estimates a % of sales
THAT calculates the AMOUNT of bad debt expense
Credit Sales * % sales uncollectible = BAD DEBT EXPENSE
Balance Sheet Approach
Estimates as a % of AR balance outstanding
THAT calculates the ENDING balance of the allowance account
AR * % AR uncollectible = BALANCE NEEDED in the allowance account
Write-Offs
DR: Allowance
CR: AR
*Allowance is accrued
DOES NOT CHANGE the amount fo the NET AR - Just reduced an asset and a contra account
Interest Bearing Notes
10,000 3 year, 6% note
initial je:
DR: NR 10k
CR: Sales 10k
As time goes on seller will accrue interest on the purchase
je:
DR: interest rec
CR: Interest income (10K.061/12)
