Chapter 6- Cash and AR Flashcards
type of asset: Cash
most liquid, provide resources necessary to meet immediate financial obligations
what is accounts receivable?
amounts due from customers as a result of a sale of goods or service
cash valuation method
recorded at face value, includes cash equivalents, measured in canadian dollars
internal control systems
making sure tasks are segregated; assets custody, recording of transaction and transaction authorization + Bank Reconciliation
Bank Reconciliation
ensures that the accounting records agree with the bank records, differences may be due to timing, incomplete data, or errors, normally prepared monthly
Why do companies sell on account?
increase total sales, remain competitive, generate additional forms of revenue
A/R @ carrying value
gross receivables - allowance of doubtful accounts
what is the allowance method used for? (AFDA)
estimates amount that WON’T be collected
- contra account to A/R
Percentage of credit sales method
bad debts expense is a function of total sales, percentage is based on collection expense, multiply by credit sales by percentage = debt expense
Aging of Accounts
the longer outstanding, the more you write off, focus valuation on asset
Direct write-off
recognize loss from uncollectible account, immaterial amount of bad debt
Cash-to-cash cycle
sell to accounts receivable: accept credit cards, offer sales discounts
Liquidity
the ability to convert assets into cash to pay liabilities
current ratio
current assets/ current liabilities
quick ratio
current assets - invnetory - prepaids/ current liabilities
