Ch 6 Cash and Receivables Flashcards
the most liquid of assets, is the standard medium of exchange and the basis for measuring and accounting for all other items
cash
short-term highly liquid investments that are:
1. readily convertible to known amounts of cash
2. so near their maturity that they present insignificant risk of changes in value because of changes in interest rates
cash equivalents
held by a company for a specific purpose and is therefore not available for immediate general use
restricted cash
a minimum balance that must be maintained in a bank account, which is used to offset the cost incurred by the bank to set up a loan
compensating balance
occurs when a company writes a check for more than the amount in its cash account
bank overdrafts
a financial asset, often referred to as loans and __________, are claims held against customers and others for money, goods, or services
receivables
the amount that customers owe a company for goods bought or services rendered
trade receivables
oral promises of the purchaser to pay for goods and services sold
accounts receivable
written promises to pay a certain sum of money on a specified future date
notes receivable
arises from a variety of transactions outside the normal course of business
examples include:
1. advances to officers, employees, and subsidiaries
2. deposits paid to cover potential damages or losses, or as a guarantee of performance or payment
3. dividends and interest receivable
4. claims against insurance companies for casualties sustained, for tax refunds, or for damaged or lost goods
nontrade receivables
the amount of consideration that a company expects to receive from a customer in exchange for transferring goods or services
transaction price
companies expect to collect these within a year or during the current operating cycle, whichever is longer
current receivables
prices may be subject to a trade or quantity discount, companies use these to avoid frequent changes in catalogs, to alter prices for different quantities purchased, or to hide the true invoice price from competitors
trade discounts
companies offer these to induce prompt payment
they are generally presented in terms such as 2/10, n/30, or 2/10 EOM net 30, EOM
cash discounts (sales discounts)
under this method, when a company determines a particular account to be uncollectible, it charges the loss to Bad Debt Expense
direct write-off method
this method of accounting for bad debts involves estimating uncollectible accounts at the end of each period
allowance method
this method ensures that companies state receivables on the balance sheet at the ______ which is gross accounts receivable less estimated uncollectible accounts
net amount expected to be collected
it also serves as a control device by identifying which accounts require special attention based on how long they have been past due
aging schedule
the FASB employs this, requires companies to measure expected uncollectible accounts and record bad debt expense on all receivables
companies look at both historical write-offs and forward looking data to best estimate the total allowance for existing receivables
current expected credit loss model (CECL)
a note receivable is supported by a formal ______, a written promise to pay a certain sum of money at a specific future date
promissory note
includes interest as part of their face amount
zero-interest-bearing notes (non-interest-bearing)
approximate an applicable interest rate that may differ from the stated interest rate; this process of interest-rate approximation is called imputation and results in
imputed interest rate
companies that buy receivables for a fee and then collect the payments directly from customers
factors
sales “”, the factor assumes the credit-risk of some customers not paying their accounts receivable balance
without recourse
sales “”, if a receivable becomes uncollectible, you will be responsible
with recourse
assigning values to the components
financial component approach
measures the number of times, on average, a company collects receivables during the period
calculated by dividing net sales by average (net) accounts receivable
accounts receivable turnover
a simple method of obtaining reasonable control while adhering to the rule of disbursement by check
imprest system for petty cash
checks cannot be cashed due to insufficient funds in the payor’s account
non-sufficient funds (NSF) checks
a schedule explaining any differences between the bank’s and the company’s records of cash
bank reconciliation
