Chapter 6 Flashcards

1
Q

Cash is the most _______ asset

A

liquid

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2
Q

What are examples of cash

A

Coin, currency. money orders, certified checks, cashier checks, bank drafts and savings accounts

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3
Q

What are cash equivilets

A

Short-term, highly liquid investments that are both…
a.) readily convertible cash
b.) so near their maturity that they present little risk of changes in values

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4
Q

What are examples of cash equivalents

A

Treasury bills, certificates of deposits, commercial paper, and money market funds

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5
Q

What is restricted cash

A

Cash that has to be used for a specific purpose

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6
Q

What are examples of restricted cash

A

Plant Expansion, retirement, or long-term debt, contractual agreements, compensating balances

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7
Q

What is a compensating balance

A

A minimum balance that must be maintained in a bank account and is used to offset the cost incurred by the bank to set up a loan

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8
Q

if it is a compensating balance against short-term borrowings it is reported as…

A

cash and cash equivilents

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9
Q

If a compensating balance is for a long-term borrowing then it is considered…

A

non current asset/investment

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10
Q

Bank Overdrafts are

A

when a company writes a check for more than it has in its cash account

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11
Q

How are bank overdrafts reported

A

As current liabilities,

If its for the same bank then it offsets against other cash accounts

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12
Q

What are receivables

A

Claims held against customers and others for money, good, services

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13
Q

How are receivables classified in the balance sheet

A
  • Current or noncurrent
    -Trade or non trade
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14
Q

Trade receivables are

A

receivables directly related to the good/service

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15
Q

What does the revenue recognition principal indicate

A

that a company should recognize revenue when there is a transfer of control

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16
Q

What is the transaction price for a receivable

A

The amount the company expects to receive minus any discounts, returns and allowances rebates and performance bonuses

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17
Q

What is the gross method?

A

That is when receivables are originally recorded w/out consideration of discount

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18
Q

What is the Net Method

A

when receivables are reported net (subtracted) of the discounts

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19
Q

How do you calculate your Net A/R

A

A/R minus AFDA

20
Q

What is the allowance method

A

When companies estimate uncollectible accounts at the end of each period

21
Q

What is the entry for estimating the uncollectible

A

BDE
AFDA

22
Q

What is the entry for a write off

A

AFDA
A/R

23
Q

What is the journal entry for gaining back your write off

A

A/R
AFDA

24
Q

What is the journal entry for collecting the reversed write off

A

Cash
A/R

25
Q

A write off only affects what…

A

Balance sheet accounts

26
Q

What is the method for estimating the AFDA

A

Percentage-of-receivables approach
- one composite rate
-aging schedule

27
Q

notes receivable generally originate from…

A

-Customers who need to extend A/R
-High risk new customers
-Loan to employees and subsidiaries
- Sales on PPE
-Lending transactions

28
Q

When there is no discount/premium on a notes receivable then…

A

Stated Rate = Market Rate

29
Q

In the zero interest bearing not The difference between the PV and FV of the note is the…

A

discount

30
Q

how would you record the issuance of a zero interest bearing not

A

N/R
Discount on N/R
Cash

31
Q

How would you record the interest revenue at the end of the year from zero interest bearing notes

A
  • discount on notes receivable
    Interest Rec
32
Q

How do you calculate the carrying value

A

N/R
+ PV interest
+ PV FV

also…

Face Value - Unamortized discount or + Unamortized premium

33
Q

What are installment notes

A
  • Notes with equal periodic payments for principal and interest
34
Q

How are short term notes receivable reported

A

at net realizable value

35
Q

how are long term notes receivables valued

A

at cost and also their fair value

36
Q

Why do owner transfer accounts or notes receivable

A
  • competition
    -sell receivables because money is tight
  • billing and collection are time consuming and costly
37
Q

What are the two ways to dispose of Receivables

A

Factoring (selling)
Assignment (secured borrowings)

38
Q

What are Factors of Receivables

A

companies or banks that buy receivables for a fee and then collect the payments directly from customers

39
Q

What is sale without recourse

A

-Purchaser assumes risk of collection
-Transfer is outright sale of receivable
-Seller records loss of sale

40
Q

What is sale with recourse

A

Seller guarantees payment to purchaser

41
Q

How would you record the journal entry for sale without recourse

A

Cash (Plug)
Loss on Sale of Receivable (Fee)
Receivable from factor
Receivable

42
Q

How would you record the transaction for sale of receivables with recourse

A

1.) Cash (Plug)
2.) Loss on Sale (Fee + Recourse Liability)
3.) Receivable form factor
4.) Receivable
5.) Recourse Liability

43
Q

What is assignment of Accounts Receivable

A

A company can borrow money on notes receivable and use accounts receivable as collateral

44
Q

What is General Assignment

A

When the company collects amounts and then gives the cash to the lender

45
Q

What is specific assignment

A

When the cash the company was supposed to collect goes straight to the lender

*safer for the company

46
Q

How do you figure out the discount ammortized

A

Difference between your cash interest received and your interest revenue