Kế toán doanh nghiệp - Chapter 7: Cash and receivables

Cash and ReceivablesChapter 7Cash and Cash EquivalentsBalances inchecking accountsCurrency and coinsCash equivalents are short-term, highly liquid investments that can be readily converted to cash.Money marketfundsTreasury billsCommercialpaperCashItems for deposit such as checks and money orders from customersInternal ControlEncourages adherence to company policiesand proceduresPromotes operational efficiencyMinimizes errorsand theftEnhances the reliability and accuracy of accounting dataInternal Control ProceduresCash ReceiptsSeparate responsibilities for receiving cash, recording cash transactions, and reconciling cash balances.Match the amount of cash received with the amount of cash deposited.Close supervision of cash-handling and cash-recording activities.Cash DisbursementsAll disbursements, except petty cash, made by check.Separate responsibilities for cash disbursement documents, check authorization, check signing, and record keeping.Checks should be signed only by authorized individuals.Accounts ReceivableResult from the credit sales of goods or services to customers. Are classified as current assets. Are recorded net of trade discounts. Merchandise may be returned by a customer to a supplier.A special price reduction, called an allowance, may be given as an incentive to keep the merchandise.Sales ReturnsTo avoid misstating the financial statements, sales revenue and accounts receivable should be reduced by the amount of returns in the period of sale if the amount of returns is anticipated to be material. Uncollectible Accounts Receivable Bad debts result from credit customers who are unable to pay the amount they owe, regardless of continuing collection efforts.PAST DUEIn conformity with the matching principle, bad debt expense should be recorded in the same accounting period in which the sales related to the uncollectible account were recorded.Uncollectible Accounts ReceivableMost businesses record an estimate of the bad debt expense by an adjusting entry at the end of the accounting period.Bad debt expense xxx Allowance for uncollectible accounts xxx Contra asset account toaccounts receivable.Normally classified asa selling expense andclosed at year-end.Allowance for Uncollectible AccountsNet realizable value is the amount of the accounts receivable that the business expects to collect.Accounts ReceivableLess: Allowance for Uncollectible AccountsNet Realizable ValueIncome Statement ApproachBalance Sheet ApproachComposite RateAging of ReceivablesIncome Statement ApproachFocuses on past credit sales to make estimate of bad debt expense.Emphasizes the matching principle by estimating the bad debt expense associated with the current period’s credit sales. Bad debt expense is computed as follows:Balance Sheet ApproachFocuses on the collectability of accounts receivable to make the estimate of uncollectible accounts.Involves the direct computation of the desired balance in the allowance for uncollectible accounts. Compute the desired balance in the allowance for uncollectible accounts.Bad debt expense is computed as:Summary of Measurement and Reporting Issues for Accounts ReceivableRecognition Depends on the earnings process; for most credit sales, revenue and the related receivables are recognized at the point of delivery.Initial valuation Initially recorded at the exchange price agreed upon by the buyer and seller.Subsequent valuation Initial valuation reduced to net realizable value by:  1.   Allowance for sales returns  2.   Allowance for uncollectible accounts:     The income statement approach      The balance sheet approachClassification Almost always classified as a current asset.Notes ReceivableA written promise to pay a specificamount at a specific future date.Even for maturities less than 1 year, the rate is annualized.Financing with ReceivablesCompanies may use their receivables to obtain immediate cash. Deciding Whether to Account for a Transfer as a Sale or a Secured BorrowingThis ratio measures how many times a company converts its receivables into cash each year. Net Sales Average Accounts ReceivableReceivablesTurnoverRatio=This ratio is an approximation of the number of days the average accounts receivable balance is outstanding. 365 Receivables Turnover RatioAverage Collection Period=Receivables ManagementEnd of Chapter 7