Exam 2 - Chapters 5 & 8 Flashcards
Answer:
___(a)___ is the most liquid asset
a. cash
Answer:
Cash is a standard of ___(a)___
a. medium exchange
Answer:
Cash is the basis for measuring your ___(a)___
a. business transactions
Answer:
What is the number one most current asset in the current asset section of the balance sheet?
Cash
List:
Types of Cash
- Cash (petty cash, money orders from customers, or checking/savings accounts)
- Cash equivalents
Answer:
Cash equivalents are not ___(a)___, but are listed together with ___(b)___
a. cash
b. cash
Define:
Cash equivalents
Short-term, highly liquid investments that are both readily converted to cash within 3 months or less and so near their maturity that they present insignificant risk of change in interest rates
Answer:
In what time frame must cash equivalents be able to be liquidated into cash?
3 months
List:
Types of T-Bills
- Treasury bills
- Commercial papers
- Money market funds
Define:
T-Bills
Considered to be a very, very short-term investment and is very liquid in the market
You can cash them out immediately almost within 3 months or less
Define:
Cash Receivables
The money the customers owe you for goods or services
Answer:
Typically, accounts receivable are recognized at ___(a)___
a. exchange price
Define:
Exchange price
The price that occurs at the transaction date when a customer purchases something from you
List:
3 Things that Effect Value of Accounts Receivable
- Sales Discounts
- Sales Returns/Allowances
- Uncollectible Accounts Receivable
Answer:
If you have cash discount, it is going to affect the value of your ___(a)___
a. accounts receivable
Define:
Cash Discounts
Discounts you give customers to encourage them to pay you earlier.
Causes your original transaction price to change
Example: Offer 5% off if they pay within 10 days, which decreases the transaction price if customer utilizes it
Example:
Cash Discount
You give customers 5% off the original transaction if they pay within 10 days, which lowers the amount of the transaction (the accounts receivable) by 5% if customer pays in 10 days
Answer:
What happens when an accounts receivable is not paid within 30 days?
It cannot be an accounts receivable anymore. The customer’s account is converted to a notes receivable so company can earn interest on unpaid amount
This is dependent on company policies (may not be 30 days)
Define:
Sales Returns
When customers aren’t satisfied with their purchase and they return the physical item within the return window, they receive cash back
Answer:
What happens to the accounts receivable when you have a sales return?
The accounts receivable is cancelled and you no longer expect cash from the customer
Define:
Sales Allowances
Negotiated reductions in sales prices after the sale
When customers don’t return physical goods, but are not completely satisfied with the goods so they renegotiate the price after the original transaction.
This lowers the amount of the accounts receivable
