Cash and cash equivalents

Define cash

currency and demand deposits with banks and/or other financial institutions

cash equivalents

short term highly liquid investments that are both readily convertible to cash and so near their maturity when acquired by the entity

Define cash

currency and demand deposits with banks and/or other financial institutions

cash equivalents

short term highly liquid investments that are both readily convertible to cash and so near their maturity when acquired by the entity

two methods of accounting for write off of uncollectible accounts

Direct write off

allowance method

direct write off

DR bad debt expense

CR accounts receivable

** not gaap

Allowance Method.

DR allowance for uncollectible accounts

CR accounts receivable

what is the difference between factoring with recourse and without recourse

with recourse: the factor may return the account to the company if it proves to be uncollectible. potential liability and risk of loss remains with the company

without recourse: the factor assumes the risk of loss if the account is uncollectible

at what value shoul d non-interest-bearing promissory notes be recorded

at present value of all future payments required by the note

the payments should be discounted at the market discount rate

Notes receivable may be discounted “with” or “without” recourse. what is the difference?

discounting with recourse: the holder remains contingently liable

discounting without recourse: the holder assumes no further liability after discounting

describe the computational steps required in “discounting a note”

1. compute maturity value

2. compute the discount

3. get proceeds by subtracting discount from maturity value

4. compute interest income as the difference between proceeds and face note

name two methods for estimating uncollectible accounts

percentage of accounts receivable at year end

aging of accounts receivable at year end

when does the title of goods pass for FOB destination?

when received

when does the title of goods pass for FOB shipping point?

when given to a common carrier

when does the title of goods pass for consigned goods?

with the owner of the goods

Under US GAAP how is market calculated in the lower of cost or market method?

market generally means current replacement cost, provided the current replacement cost does not exceed the market ceiling or floor

Ceiling

net realizable value (estimated selling price - completion and disposal cost)

floor

net realizable value minus normal profit margin

How is net realizable value calculated in the lower of cost and net realizable value method?

net realizable value is the net selling price less completion and disposal costs

Periodic

the quantity of inventory is determined only by physical count

ending inventory is a physcally counted and priced

perpetual

inventory is updated for each purchase and for each sale

keeps a running total of inventory minus balances