Working Capital and Fixed Assets Flashcards
Factoring Receivables with Recourse?
Without Recourse?
Factoring with recourse is the clearer of the two: if Company B does not pay the factor in a timely fashion (usually within 90 days), then recourse kicks in and Company A owes the factoring company the full amount of the invoice.
Factoring WITHOUT recourse: What factoring without recourse means in practice is that if, and only if, Company B cannot pay the factor because they are insolvent, then Company A is off the hook. Otherwise they are ON the hook.
How to determine “Cash Balance”?
Checkbook Balance
(PLUS)
Checks in Transit
Wholesaler’s Terms
EG - 2/10 net 30
For example, the term 2/10, net 30 allows a customer to deduct 2% of the net amount owed if the customer pays within 10 days of the invoice date.
If a customer does not pay within the discount period of 10 days, the net purchase amount (without the discount) is due 30 days after the invoice date.
When lender is NOT capable of honoring a year+ liability agreement, what do you report as?
Current Liability,
Due to lender not being financially capable of honoring agreement.
Cash and Cash Equivalents
Cash = UNRESTRICTED cash and short-term investments that are near maturity.
IF Restricted (EG CDs, and Commercial Paper,) they must mature within 3 months of the balance date.
Current Ratio,
aka
Working Capital Ratio.
Current Ratio =
Current Assets / Current Liabilities
(CA = EG Cash, A/R, inventory)
QUICK Ratio
measure of short-term liquidity RE liquid assets
Quick ratio = (cash+Net Receivables+Marketable securities) / current liabilities
LIKE CURRENT RATIO but no Inventory because it is not liquid.
How are negative bank balances reported?
Current Liabilities (NOT subtractions from cash)
“Pledging” A/R?
When you pledge (or assign) receivables in exchange for a loan, and O.G. company RETAINS title to receivables, and uses proceeds from Pledged A/R in order to repay the loan.
Reconciling CASH via bank statement Balance:
Bank Statement Bal
ADD deps. in transit
SUBTRACT checks outstanding.
GAAP inventory valuation?
IFRS inventory valuation?
GAAP: lower of cost or market
(where Market = median value when considering market ceiling, mkt floor, and replacement cost)
IFRS: lower of cost or NRV
(where NRV = market ceiling;
Net Selling Price less DISPOSAL COSTS)
Internally Computed Price Index
PI = ending inv, at current year cost / ending in, at base year cost
What does dollar-value LIFO do?
Regular LIFO?
Estimates of price-level changes for specific inventories are REQUIRED.
Measured in dollars and is adjusted with price index for changing price index
REGULAR LIFO:
Units, and priced at unit price.
How to calculate inventory under Moving Average or Perpetual?
Weighted Average Cost per Unit based on what things are purchased at.
Are consigned goods a part of inventory?
No.
When there is a “Commission” on a consigned good, subtract that value from sale val.
EG 500 sweaters sold on consignment x Priced to sell at $100 (Less 10% commission) = 45000 Consigned Goods Payable
Net income from consigned goods?
You must LESS both advertising fees, and commissions
Inventory/COGS formula:
Beg Inventory \+ Purchases (=Cost of Goods Avail for Sale) \+ Freight in (if applicable) - Purchase Discs. (if applicable) LESS COGS
= Ending Inventory
“Market” in LCM situation…
“Market” refers to the median of
Ceiling (usually given)
Replacement Cost (usually gien)
Floor (NRV less DISPS less PROF MARG)
What GAAP inventory method should a company use, when they want to MAXIMIZE profits in period of rising cost?
FIFO
