Critical Issues

1
Critical Issues

• Sufficient cash to meet obligations
• Sufficient cash to take advantage of
  opportunities
• Speed of liquidity
• Long-term liquidity
• Meeting investment objectives
• Source of financial assets
• Sufficient liquidity for distribution

2
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 (OCI)

3
Cash

• Cash
• Investments with 90 days or less to maturity at
  time of acquisition
• Restricted Cash
• Foreign Cash----gttranslate to US

4
Accounts Receivable

• Amounts due from customers
• Recognition
• Process complete
• Amount measurable
• Costs identifiable
• Balance is collectible

5
A/R Valuation

• Net Realizable Value
• Frequent Monitoring
• A/R Turnover and DSO (Days Sales Outstanding)
• Older A/R are usually less collectible

6
Bad Debt Expense

• Recognition based on past experience
• Follows the matching principle
• Basis of estimates
• of sales
• Aging of A/R

7
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

8
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

9
Inventory Acquisition

• What units
• What costs

10
Cost Basis

• Sacrifice to put into use
• Components
• Net price
• Freight
• Production
• Preparation
• Fees
• N.B.....future benefit

11
Inventory Methods

• Perpetual
• B I - O E
• Periodic
• B I - E O

12
Cost Flow Assumption

• Specific ID
• Averaging
• FIFOfirst in first out
• LIFOlast in first out
• Applies to costs only, NOT physical movement
• Disclose both values
• Use same method for book and tax

13
Inventory Valuation

• Lower of Cost or Market

14
Lower of Cost or Market

• Determine historical cost
• Chose appropriate market value
• Replacement cost...current price to replace
• Net realizable valueceiling
• NRV less normal profitfloor