1 / 20

Short-Term Liquid Assets

Short-Term Liquid Assets. Chapter 7. Liquidity . Managing Cash Setting credit policies Average days’ sales uncollected Receivable turnover Financing receivables Contingent liability – factoring with recourse. Cash. Coins and currency on hand Checks and money orders from customers

cale
Download Presentation

Short-Term Liquid Assets

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Short-Term Liquid Assets Chapter 7

  2. Liquidity • Managing Cash • Setting credit policies • Average days’ sales uncollected • Receivable turnover • Financing receivables • Contingent liability – factoring with recourse

  3. Cash • Coins and currency on hand • Checks and money orders from customers • Deposit in checking accounts • A compensating balance

  4. Cash equivalents • Investments that have a term of 90 days or less • Time deposits, certificate of deposits, treasury notes

  5. imprest • An advance of money or loan • A petty cash fund is an advance of money • The fund is to be reimbursed based on the documented expenditures • So a petty cash fund is an imprest system

  6. Short-Term Investments • Investments that have a maturity of more than 90 days but are intended to be held only until cash is needed for the current operations • A.k.a. marketable securities

  7. Long-term investments • Intended to be held for more than one year • Reported in the an investment section of the balance sheet

  8. Securities • Held-to-maturity securities • Trading securities – short term • Available-for-sale securities

  9. Held-to-maturity • Recorded at cost • Valued on B/S at cost adjusted for the effects of interest

  10. Trading Securities • Classified as current assets • Valued at fair value, which is usually the same as market value • An increase or decrease in the total trading portfolio is included in the net income in the accounting period in which the increase or decrease occurs.

  11. Available-for-sale Security • Accounted for in exactly the same way as trading securities • BUT the unrealized gain or loss is not reported on the income statement, but is reported as a special item in the stockholders’ equity section of the balance sheet

  12. Accounts Receivable • Uncollectible accounts or bad debts • Expense of selling on credit • GAAP do not use the direct charge-off method

  13. The Allowance Method • Matching Rule • Losses from uncollectible accounts be estimated • The estimated losses become an expense in the fiscal year in which sales (revenues) are made

  14. Estimating Uncollectible Accounts expense • Two methods • Percentage of Net sales method • Accounts receivable aging method • Two key questions: • What is the amount of uncollectible accounts expense? • What is the ending balance of Allowance for uncollectible accounts

  15. Percentage of Net Sales Method • Use historical records or industrial experience to estimate • Will use Excel to show the procedure and computations • Loss rate times Net sales = expense • Beginning balance + expense = ending balance

  16. Accounts receivable aging method • Classify the age (due date) of the accounts receivable • The further past due an account is, the greater the possibility the account will not be paid • Summation of loss of each different due date will be the ending balance

  17. Aging method • The uncollectible accounts expense will be the difference between the beginning balance and the ending balance • The problem is to recognize that normal allowance balance should be credit; if it is debit, then it adds to the expense more

  18. Bank Reconciliation • Two different balances: • Balance per bank statement • Balance per book • Each one needs to add some and subtract some

  19. Balance per bank statement • Add • Deposit in transit • Subtract • Outstanding checks

  20. Balance per book • Add • Credit memos like note receivable collected • Interest income • Subtract • Debit memos like overstatement of deposit • Service charge

More Related