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CHAPTER 7 - PowerPoint PPT Presentation


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CHAPTER 7. Cash and Receivables. ……..…………………………………………………………. Cash. readily available free from contractual restrictions restricted cash: current or long-term Would a bank accept it for deposit?. Separate Disclosure. Other Assets. Petty cash account. Bank overdraft.

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slide1

CHAPTER 7

Cash

and Receivables

……..…………………………………………………………...

Cash

  • readily available
  • free from contractual restrictions
    • restricted cash: current or long-term
  • Would a bank accept it for deposit?
slide2

Separate Disclosure

Other Assets

Petty cash account

Bank overdraft

Advances to subsidiaries

Certificates of deposit

Liabilities

Cash

slide3

Separate Disclosure

Other Assets

Minimum cash balance

Money market funds

Liabilities

Cash

slide4

RECEIVABLES

Estimate:

- uncollectible

- sales returns

Current Receivables

Reported at

net realizable value

  • trade receivables
    • accounts receivable
    • notes receivable
  • nontrade receivables
    • tax refunds, advances, etc.

Noncurrent Receivables

  • classified as long-term assets
slide5

2/10, n/30

Trade Discounts

  • a reduction in catalog price
  • usually stated as a percentage
  • record the sale at the discounted amount
    • no one pays full price!

Sales Discounts

  • a discount for prompt payment
  • Gross Method vs. Net Method (cf. Illustration 7-4)
slide6

Uncollectible Accounts Receivable

Direct Method

To write-off an account as uncollectible:

Bad Debts Expense 540

Accounts Receivable 540

  • not an acceptable method
  • violation of the matching principle
  • failure to report net realizable value
slide7

A/R

7,700

90,000

87,000

Sales

Bad Debt Exp

0

90,000

0

Allow for DA

500

Allowance Method

To write-off accounts as uncollectible:

To record bad debts expense for the year:

slide8

Sales

Bad Debt Exp

A/R

0

90,000

0

7,700

90,000

87,000

960

Allow for DA

500

960

Allowance Method – Percentage of Sales

  • Bad Debts = % of credit sales
    • $900 = 1% x $90,000

To record bad debts expense for the year:

slide9

Sales

Bad Debt Exp

A/R

0

90,000

0

7,700

90,000

87,000

960

Allow for DA

500

9,740

960

Allowance Method – Percentage of Receivables

  • Allowance for DA = % of A/R
  • $487 = 5% x $9,740

To record bad debts expense for the year:

slide10

NOTES RECEIVABLE

Periods

Rate

PV

Annuity

FV

AD?

Notes Issued at Face Value

  • Bigelow Corp sells merchandise to customer for a 3-year, $5,000 note bearing interest at 10% annually. Market rate for a similar note is 10%.
slide11

To record receipt of the note:

To record the interest received:

slide12

Periods

Rate

PV

Annuity

FV

AD?

Noninterest-bearing Notes

  • Bigelow Corp sells merchandise to customer for a 3-year, $5,000 noninterest-bearing note. Market rate for a similar note is 10%.
slide13

Date

Cash

Received

Int Rev.

(10%)

Discount

Amortized

Carrying

Amount

7/1/03

3,757

To record receipt of the note:

7/1/04

7/1/05

To record the interest earned:

slide14

Periods

Rate

PV

Annuity

FV

AD?

Interest-bearing Notes

  • Bigelow Corp sells merchandise to customer for a 3-year, $5,000, 6% note. Interest on the note will be paid semiannually. The market rate for a similar note is 10%.
slide15

Date

Cash

Received

Int Rev.

(5% semi)

Discount

Amortized

Carrying

Amount

7/1/03

4,492

To record receipt of the note:

1/1/04

7/1/04

To record the first interest payment received:

slide16

Periods

Rate

PV

Annuity

FV

AD?

Notes Received for Property

  • Bigelow Corp sells an office building for a 5-year, $225,000 note bearing interest at 2% annually. Information on the building:

Original cost $230,000

Accumulated deprec 69,000

Appraisal value 194,000

slide17

Cost 230,000

Accum depr 69,000

PV 194,000

FV 225,000

To record sale of building:

slide18

DISPOSITION OF ACCOUNTS RECEIVABLE

Secured Borrowing

  • A/R are used as collateral when borrowing money
  • Notes or loans payable are recorded as usual
  • A/R remain on the books of the company
    • no special entry when they become collateral
    • collection of A/R recorded as usual
    • collections are remitted to the lender
slide19

Sale of Receivables

  • Factoring: sale of receivables to a bank
  • Securitization: sales of a share in a pool of assets that include receivables

Sale without Recourse

Cash 460,000

Due from Factor 25,000

Loss on Sale of Receiv 15,000

A/R 500,000

slide20

Proceeds retained by the factor for possible discounts, returns, and allowances.

The estimated value of the recourse obligation.

Sale with Recourse

Cash 460,000

Due from Factor 25,000

Loss on Sale of Receiv 21,000

A/R 500,000

Recourse Liability 6,000

slide21

PRESENTATION AND ANALYSIS - RECEIVABLES

A/R

Turnover

=

Net Sales

Average Net Trade Receivables

Presentation

  • Separate current from noncurrent
  • Report net realizable value
  • Disclose receivables pledged as collateral

Analysis

slide22

PETTY CASH SYSTEM

Fund Established

Expenses Paid

Receipt

Fund Reimbursed

Receipt

Receipt

Receipt

Receipt

Receipt

Petty Cash 500

Cash 500

No entry

Office Exp 130

Auto Exp 215

Misc Exp 130

Cash 475

slide23

BANK RECONCILIATIONS

Balance per bank $13,417.20

Add: Deposits in Transit

Oct. 31, 2006 2,013.00

Less: Checks Outstanding

#5164 $ 220.00

#5170 35.50

#5171 756.67 1,012.17

Adjusted balance per bank $14,418.03

Balance per books $14,425.53

Less: Bank service charge 7.50

Adjusted balance per books $14,418.03