Cash and Receivables

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Cash and Receivables

• Sid Glandon, DBA, CPA
• Assistant Professor of Accounting

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Cash and Cash Equivalents

• Cash
• coin and currency
• demand deposits
• Cash equivalents
• Short-investments (90 days)
• Money market funds
• Treasury bills
• Commercial paper

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Internal Controls

• Separation of duties
• Checking accounts
• Petty cash funds
• Physical protection of cash
• Protection of the accounting information system
  records
• Bank reconciliations

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Bank Reconciliation

• Three steps
• Reconciliation per bank
• Reconciliation per book
• Adjusting journal entries

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Items Not Considered Cash

• Overdraft without the right of offset
• Restricted cash accounts
• Investments
• Post dated checks from customers
• Loans to employees

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Restricted Cash

• Not available to cover current liabilities
• Bond sinking funds
• Compensating balances

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Receivables

• Accounts receivable (Trade)
• Notes receivable
• Nontrade receivables
• Advances to officers and employees
• Advances to subsidiaries
• Deposits
• Dividends and interest receivable
• Claims against others

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Initial Valuation

• Converted into cash within operating cycle
• Initial valuation at the amount expected to be
  received
• Trade discounts
• Selling price less than normal list price
• Cash or sales discounts
• Incentive for paying invoice on time
• gross method
• net method

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Subsequent Valuation

• Sales Returns
• Uncollectible accounts
• Allowance method
• Balance sheet approach
• Income statement approach

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Balance Sheet Approach

• Prepare a schedule of agee accounts receivable
• Determine amount or percentage that will likely
  not be collected
• Adjust the allowance account to reflect the
  computed amount by
• Journalize
• Bad debt expense-debit
• Allowance for doubtful accounts-credit

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Journal Entry Balance Sheet Approach
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Income Statement Approach

• Determine net credit sales
• Calculate estimated percentage of bad debt
  expense against net credit sales
• Journalize
• Bad debt expense-debit
• Allowance for doubtful accounts-credit

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Journal EntryIncome Statement Approach
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Transactions Using the Allowance for Doubtful
Accounts

• Beginning balance
• Write-off of uncollectible accounts
• Reinstate accounts previously written-off
• Analyze ending balance and adjust based on the
  analysis of year end aged accounts receivables

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Balance Sheet Presentation
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Recognition of Notes Receivable

• Interest-bearing notes
• Note issued at face value
• Noninterest-bearing notes
• Zero-interest-bearing notes
• Interest is Imputed and the note is sold at a
  discount

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Financing with Receivables

• Secured borrowing
• Assigned or pledged
• Sales of receivables
• Factoring
• Securitization
• Sales without recourse
• Sales with recourse

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Discounting a Note

• Sale of note to a financial institution
• Discount rate (banks market interest rate) is
  applied to the maturity value
• The seller receives cash of the maturity value
  less the discount