ACC 310: Test 3

Cash

the most liquid of assets, is the standard medium of exchange and the basis for measuring and accounting for all other items

Cash consists of:

Coin, currency, petty cash, and available funds on deposit at the bank, such as checking and savings accounts and money market accounts with check-writing privileges. Negotiable instruments such as money orders, certified checks, cashier’s checks, personal checks, and bank drafts.

Cash Equivalents

short-term, highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates

Restricted Cash

held by a company for a specific purpose and is therefore not available for immediate general use

Compensating Balance

a minimum balance that must be maintained in a bank account, which is used to offset the cost incurred by the bank to set up a loan

Bank Overdrafts

occur when a company writes a check for more than the amount in its account

Receivables

claims held against customers and others for money, goods, or services

Current Receivables

expected to be collected within a year or during the current operating cycle, whichever is longer

Trade Receivables

arise from transactions within the normal course of business

Accounts Receivable

Oral promises of the purchaser to pay for goods and services received. They represent “open accounts” resulting from short-term extensions of credit. A company normally collects them within 30 to 60 days.

Notes Receivable

Written promises to pay a certain sum of money on a specified future date. They may arise from sales, financing, or other transactions. They may be short-term or long-term and generally include an interest component.

Nontrade Receivables

arise from a variety of transactions outside the normal course of business; generally reported as separate items on the balance sheet

Transaction Price

the amount of consideration that a company expects to receive from a customer in exchange for transferring goods or services

Trade Discounts

used to avoid frequent changes in catalogs, to alter prices for different quantities purchased, or to hide the true invoice price from competitors; commonly quoted in percentages

Cash Discounts (Sales Discounts)

used to induce prompt payment

Direct Write-Off Method (non-GAAP)

records bad debt expense at the time a specific customer account is deemed uncollectible, is often used for tax purposes, but it is not allowed under GAAP unless the amount uncollectible is immaterial

Current Expected Credit Loss (CECL) Method (GAAP)

involves estimating expected credit losses at the end of each period

Cash (Net) Realizable Value or Net Accounts Receivable

gross accounts receivable less expected credit losses; represents the net amount expected to be collected

Aging Schedule

applies a different credit loss percentage to various age categories based on past experience

Promissory Note

a written promise to pay a certain sum of money at a specific future date

Interest-Bearing Notes

have a stated rate of interest

Zero-Interest-Bearing Notes

include interest as part of their face amount

Stated (Nominal or Face) Interest Rate

the interest rate that is written into the notes receivable contract; represents the cash rate of interest paid by the borrower

Effective-Interest Rate (Market Rate or Effective Yield)

the interest rate used in the market to determine the value of the note; referred to as the discount rate used to determine present value

Implicit Interest Rate

an unstated, hidden interest rate that must be calculated when a financial arrangement or contract involves payments without an explicit interest percentage

Effective-Interest Method

amortizing, or allocating, the discount to interest revenue over the three years of the note