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Critical Issues-Current Assets. Sufficient liquidity to meet obligations Sufficient liquidity to take advantage Speed of liquidity Long-term liquidity Meeting investment objectives Source of financial assets Sufficient liquidity for distribution. Asset Cash Accounts Receivable

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critical issues current assets
Critical Issues-Current Assets
  • Sufficient liquidity to meet obligations
  • Sufficient liquidity to take advantage
  • Speed of liquidity
  • Long-term liquidity
  • Meeting investment objectives
  • Source of financial assets
  • Sufficient liquidity for distribution
valuation
Asset

Cash

Accounts Receivable

Notes Rec.-L/T

Invest-Held to Maturity

Trading Securities

Available for Sale Sec.

Basis

Stated amount

Net Realizable Value

Present Value

Adjusted Cost

Market Value (P/L)

Market Value (Equity)

Valuation
slide3
Cash
  • Cash
  • Investments with 90 days or less to maturity at time of acquisition
  • Restricted Cash
  • Foreign Cash---->translate to US $
accounts receivable
Accounts Receivable
  • Amounts due from customers
  • Recognition
    • Process complete
    • Amount measurable
    • Costs identifiable
    • Balance is collectible
a r valuation
A/R Valuation
  • Net Realizable Value
  • Frequent Monitoring
  • A/R Turnover and DSO (Days Sales Outstanding)
  • Older A/R are usually less collectible
bad debt expense
Bad Debt Expense
  • Recognition based on past experience
  • Follows the matching principle
  • Basis of estimates
    • % of sales
    • Aging of A/R
accounting for bad debts
Accounting for Bad Debts
  • Recording the Allowance for Bad Debts
    • Dr. Bad Debt Expense; Cr. Allowance
  • Writing off Bad Debts
    • Dr. Allowance; Cr. Specific A/R
  • Adjusting Prior Write-offs
    • Dr. Cash; Cr. Allowance
f s presentation
F/S Presentation
  • Allowance for Bad Debts--Contra Account on the Balance Sheet
  • Potential for subjective interpretation
  • Current asset if collectible w/in a year
  • Financing opportunities
    • Pledging-borrowings on all
    • Assigning-borrowings on specific acct.
    • Factoring-sale of specific acct.
      • With or without recourse
inventory acquisition
Inventory Acquisition
  • What units
  • What costs
cost basis
Cost Basis
  • Sacrifice to put into use
  • Components
    • Net price
    • Freight
    • Production
    • Preparation
    • Fees
  • N.B.....future benefit
inventory methods
Inventory Methods
  • Perpetual
    • B + I - O = E
  • Periodic
    • B + I - E = O
cost flow assumption
Cost Flow Assumption
  • Specific ID
  • Averaging
  • FIFO…first in; first out
  • LIFO…last in; first out
  • Applies to costs only, NOT physical movement
  • Disclose both values
  • Use same method for book and tax
inventory valuation
Inventory Valuation
  • Lower of Cost or Market
lower of cost or market
Lower of Cost or Market
  • Determine historical cost
  • Chose appropriate market value
    • Replacement cost...current price to replace
    • Net realizable value…ceiling
    • NRV less normal profit…floor
critical cost terms
Critical Cost Terms
  • Fixed vs. Variable
  • Product vs. Period
  • Manufacturing vs. Non-manufacturing
  • Direct vs. Indirect
  • Controllable vs. Uncontrollable
  • Opportunity and Sunk Costs
  • Cost Driver
  • Differential Cost and Revenue
manufacturing cost flows

RAW MATERIAL WORK-IN-PROCESS FINISHED GOODS

BOH

I

O

EOH

B O/H R/M B O/H WIP B O/H F/G

R/M TRANSFERS

DIR. LABOR

MFG OVERHEAD

MANUFACTURING

COSTS

COST OF GOODS

MANUFACTURED

(COGM)

E O/H WIP

COGM

COST OF GOODS

SOLD

(COGS)

E O/H F/G

R/M PURCHASES

TRANSFERS TO

WIP

E O/H R/M

P&L

Manufacturing Cost Flows