Chapter 7: Cash and Receivables

Slides:



Advertisements
Similar presentations
Slide 1-1 Chapter 2 Principles of Accounting Analyzing Business Transactions.
Advertisements

Chapter 3: The Accounting Information Systems
Chapter 4: Income Statement and Related Information
Chapter 4: Income Statement and Related Information Intermediate Accounting, 11th ed. Kieso, Weygandt, and Warfield Prepared by Jep Robertson and Renae.
Financial Accounting, 3e Weygandt, Kieso, & Kimmel
Chapter 5: Balance Sheet and Statement of Cash Flows Systems
Chapter 19: Accounting for Income Taxes
Chapter 9: Inventories: Additional Valuation Issues
Chapter 20: Accounting for Pensions and Postretirement Benefits
Chapter 23: Statement of Cash Flows
Chapter 21: Accounting for Leases
Prepared by: Gabriela H. Schneider, CMA; Grant MacEwan College INTERMEDIATE ACCOUNTING INTERMEDIATE ACCOUNTING Sixth Canadian Edition KIESO, WEYGANDT,
Prepared by Debby Bloom-Hill CMA, CFM. Slide 13-2 CHAPTER 13 Statement of Cash Flows.
1 CHAPTER 6 Earnings Management. 2 “Earnings Management” An expression referring to cases when management uses its reporting discretion to produce financial.
The Cash Flow Statement
1 Financial Accounting: Tools for Business Decision Making Kimmel, Weygandt, Kieso, Trenholm KIMMEL.
Accounting Principles Second Canadian Edition Prepared by: Carole Bowman, Sheridan College Weygandt · Kieso · Kimmel · Trenholm.
PRINCIPLES OF FINANCIAL ACCOUNTING
Chapter 15 Prepared by Richard J. Campbell Copyright 2011, Wiley and Sons Auditing Assets, Liabilities, and Equity Related to the Financing Cycle.
Chapter 7: Cash and Receivables
John Wiley & Sons, Inc. © 2005 Chapter 18 The Statement of Cash Flows Prepared by Naomi Karolinski Monroe Community College and and Marianne Bradford.
REPORTING CASH FLOWS APPENDIX B Warfield Wyegandt Kieso
ACCOUNTING PRINCIPLES SIXTH CANADIAN EDITION Prepared by: Debbie Musil Kwantlen Polytechnic University Chapter 16 Investments.
Statement of Cash Flows
John Wiley & Sons, Inc. © 2005 Chapter 7 Internal Control and Cash Prepared by Barbara Muller Arizona State University West Principles of Accounting Kimmel.
Chapter 17: Investments Intermediate Accounting, 11th ed.
Chapter 8-1 Chapter 8 Fraud, Internal Control and Cash Accounting Principles, Ninth Edition.
John Wiley & Sons, Inc. © 2005 Chapter 17 Investments Prepared by Naomi Karolinski Monroe Community College and and Marianne Bradford Bryant College Accounting.
1. 2 Chapter 6: The Current Asset Classification, Cash and Accounts Receivable.
John Wiley & Sons, Inc. © 2005 Chapter 5 Accounting for Merchandising Operations Prepared by Naomi Karolinski Monroe Community College and and Marianne.
Cash and Receivables Sid Glandon, DBA, CPA Assistant Professor of Accounting.
C H A P T E R 15 STOCKHOLDERS’ EQUITY
A ccounting Principles, 6e Weygandt, Kieso, & Kimmel Prepared by Marianne Bradford, Ph. D. Bryant College John Wiley & Sons, Inc.
Financial Accounting, 5e California State University,
Chapter 8-1 Chapter 8 Fraud, Internal Control and Cash Accounting Principles, Ninth Edition.
STATEMENT OF CASH FLOWS
1 Chapter 16: Accounting for Leases Fundamentals of Intermediate Accounting Weygandt, Kieso and Warfield Prepared by Bonnie Harrison, College of Southern.
CURRENT LIABILITIES AND CONTINGENCIES
ACCOUNTING PRINCIPLES SIXTH CANADIAN EDITION Prepared by: Debbie Musil Kwantlen Polytechnic University Chapter 8 Accounting for Receivables.
Chapter 7 Cash and Receivables. Cash n Includes coin, currency, checking and saving a/c, money order, cashier’s check, personal check, petty cash n excludes.
FINANCIAL ACCOUNTING Tools for Business Decision-Making KIMMEL  WEYGANDT  KIESO  TRENHOLM  IRVINE CHAPTER 12: REPORTING AND ANALYZING INVESTMENTS.
1 Financial Accounting: Tools for Business Decision Making Kimmel, Weygandt, Kieso, Trenholm KIMMEL.
Chapter 18: Revenue Recognition Intermediate Accounting, 11th ed. Kieso, Weygandt, and Warfield Prepared by Jep Robertson and Renae Clark New Mexico State.
Completing the Accounting Cycle
WEYGANDT. KIESO. KIMMEL. TRENHOLM. KINNEAR. BARLOW. ATKINS PRINCIPLES OF FINANCIAL ACCOUNTING CANADIAN EDITION Chapter 4 Completion of the Accounting Cycle.
WEYGANDT. KIESO. KIMMEL. TRENHOLM. KINNEAR. BARLOW. ATKINS PRINCIPLES OF FINANCIAL ACCOUNTING CANADIAN EDITION Chapter 10 Current Liabilities Prepared.
Investments Chapter 17 Accounting Principles, 7th Edition
C H A P T E R 7 CASH AND RECEIVABLES Intermediate Accounting IFRS Edition Kieso, Weygandt, and Warfield.
Slide 13-2 CHAPTER 13 Statement of Cash Flows Learning objective 1: Explain the need for the statement of cash flows and identify the three types of.
Chapter 14: Long Term Liabilities Intermediate Accounting, 11th ed. Kieso, Weygandt, and Warfield Prepared by Jep Robertson and Renae Clark New Mexico.
Chapter 19: Accounting for Income Taxes
Chapter 4 Using Financial Statements to Analyze Value Creation
Chapter 13: Investments Fundamentals of Intermediate Accounting
Chapter 7: Cash and Receivables
Chapter 6: Cash and Accounts Receivable
Chapter 17: Investments Intermediate Accounting, 11th ed.
Chapter 19: Revenue Recognition
Chapter 18: Investments Intermediate Accounting, 10th Edition
Intermediate Accounting, 10t edition, Chapter 24 (Kieso et al.)
Intermediate Accounting, 10th Edition, Ch. 22 (Kieso et al.)
Chapter 17: Investments Intermediate Accounting, 11th ed.
Chapter 7: Cash and Receivables
Chapter 21: Accounting for Leases
Chapter 14: Long Term Liabilities
Chapter 23: Statement of Cash Flows
Chapter 3: The Accounting Information Systems
Chapter 7: Cash and Receivables
Chapter 14: Long Term Liabilities
Financial Accounting, IFRS Edition
ACCOUNTING FOR RECEIVABLES
Presentation transcript:

Chapter 7: Cash and Receivables Intermediate Accounting, 11th ed. Kieso, Weygandt, and Warfield Chapter 7: Cash and Receivables 2

Chapter 7: Cash and Receivables After studying this chapter, you should be able to: Identify items considered cash. Indicate how cash and related items are reported. Define receivables and identify the different types of receivables. Explain accounting issues related to recognition of accounts receivable.

Chapter 7: Cash and Receivables Explain accounting issues related to valuation of notes receivable. Explain accounting issues related to recognition of notes receivable. Explain accounting issues related to disposition of accounts and notes receivable. Explain how receivables are reported and analyzed.

Cash and Cash Equivalents: Issues Definition of “cash” Management and control of cash Reporting of cash in the balance sheet

Items Comprising “Cash” Cash must be readily available and be free of restrictions Cash consists of coins, currency and available funds Deposits (CDs) and short term paper are classified as temporary investments Post dated checks, travel advances and stamps on hand are not classified as cash

Management of Control and Cash Since cash is the most liquid asset, internal control of cash is imperative. Controls must prevent unauthorized use of cash. Management must have necessary information for proper use of cash.

Reporting of Cash The reporting of cash depends upon whether it is: restricted cash a bank overdraft or a cash equivalent

Restricted Cash Compensating balances: are amounts maintained by a corporation with a bank in support of existing borrowing arrangements. are identified as current assets separate from cash, if they relate to short-term loans. are identified as non-current assets separate from cash, if they relate to long-term loans.

Bank Overdrafts Overdrafts represent checks written in excess of cash account. Overdrafts may be offset against available cash in another account in the same bank. Otherwise, such offsetting is not allowed.

Accounts Receivable: Issues Types of accounts receivable Recognition of accounts receivable in the financial statements Valuation of accounts receivable Disposition of receivable

Accounts Receivable Recognition: Recording Cash Discounts There are two methods: Gross and Net Gross method records discounts when taken by customers. Net method records discounts not taken by customers.

Accounts Receivable: Recording Cash Discounts GROSS method NET method Record revenue at gross amount of sales. When customer takes the discount, record cash discounts. Cash discounts reduce gross sales revenue. Record revenue at gross amount of sales less cash discount. When customer forfeits discount, record discounts not taken. Report discounts forfeited as other revenue.

Valuation of Accounts Receivable Short term receivables are reported at their net realizable value (NRV) The NRV is the net amount expected to be collected The NRV is gross accounts receivable less estimated non-collectible accounts.

Comparison of Methods for Estimating Uncollectibles

Estimating Non-collectable Receivables Methods Direct Write-Off Allowance Not based on the matching Based on the matching principle principle Accounts are written off Estimated bad debts are when determined non-collectible matched against revenue Appropriate only if Must be followed if amounts are not material amounts are material

Estimating Non-collectable Accounts: The Allowance Method The estimate of non-collectible accounts may be based on: Sales (or net sales), known as the Income statement approach, or Accounts receivable balance, known as the Balance sheet approach.

Balance Sheet Representation Short-term accounts receivable are shown at their net realizable value as follows: Accounts Receivable (gross): $ XXX less: Allowance: ($ XX) Net Realizable Value: $ XX

Notes Receivable: Issues Recognition of Notes Receivable may be issued at face value or not at face value may be issued for cash/non-cash consideration Valuation issues Disposition of notes receivable

Recognition of Notes Receivable Short term N/R Long term N/R Record at present value of cash expected to be collected Record at face value less allowance

Recognition of Notes Receivable Notes receivable are issued at face value when the stated rate of interest is the same as the effective (market) rate. If the stated rate is less than the effective rate then a discount results. If the stated rate is greater than the effective rate then a premium results. The discount or premium is amortized to interest revenue by the effective interest method.

Recognition of Notes Receivable Issues NOT at face value Non-interest bearing Interest bearing 1. Determine issue price on notes receivable at the effective rate of interest. 2. The discount/premium is amortized to interest revenue by the effective interest method 1. Determine issue price on notes receivable at implicit rate of interest 2. The discount/premium is amortized to interest revenue by the effective interest method

Disposition of Accounts and Notes Receivable The holder of accounts or notes receivable may transfer them for cash. The transfer may be: a secured borrowing or a sale of receivables Holder retains ownership of receivables in a secured borrowing transaction. Holder transfers ownership of receivables in a sale (retaining risks of collection).

Transfer of Receivables: Borrowing vs. Sale Treatment Conditions 1. Are transferred assets isolated from transferor? and 2. Does transferee have right to pledge or sell assets? and 3. Has transferor divested itself of control through repurchase agreement? Yes Sale No Borrowing

Accounting for Transfers of Receivables Secured Borrowing Sale Without Recourse With Recourse Continuing involvement by seller No continuing involvement by

Secured Borrowing (the basics) Transferor records a finance charge. Transferor collects accounts receivable. Transferor records sales returns and sales discounts. Transferor absorbs bad debts expense. Transferor records interest expense on notes payable. Transferor pays on the note periodically from collections.

Sale of Receivables Transferor transfers ownership of receivables to factor. Factor records the (transferred) accounts as assets in its books. Transferor records any amount retained by transferee as “due from factor.” Transferor records loss on sale of receivables. Transferor records any component liability (when appropriate).

Accounting for Transfers of Receivables

COPYRIGHT Copyright © 2004 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.