Lecture Notes on Cash and Receivables

These flashcards cover key concepts related to cash and receivables, including definitions, accounting methods, and the purpose of internal controls.

What are Cash Equivalents?

Short-term, highly liquid investments that are readily convertible to cash with little risk of loss.

What is the purpose of Internal Control?

To encourage adherence to company policies and procedures, promote operational efficiency, minimize errors and theft, and enhance the reliability and accuracy of accounting data.

What is Restricted Cash?

Cash that is restricted in some way and not available for current use.

What are Accounts Receivable?

Amounts created when sellers recognize revenue associated with a credit sale, usually due within 30 to 60 days.

What is a Trade Discount?

A percentage reduction from the list price, often a quantity discount to large customers.

What does 2/10, n/30 mean?

A sales discount offering a 2% discount if paid within 10 days, otherwise full payment is due in 30 days.

Define the Gross Method in accounting.

Accounting method that records sales at the full price without considering discounts, unless taken.

Define the Net Method in accounting.

Accounting method that records sales at the net price after considering sales discounts.

What must a company do to account for Sales Returns?

Recognize the expected returns and adjust sales revenue and inventory accordingly.

What is the Direct Write-Off Method?

An accounting method where an uncollectible account is written off when it is determined uncollectible; not allowed by GAAP.

What is the Allowance Method?

An accounting method that estimates bad debts and creates an allowance for uncollectible accounts.

What does an Accounts Receivable Aging Schedule provide?

It categorizes accounts receivable by the length of time they have been outstanding, helping assess collectability.

What are Notes Receivable?

Formal credit arrangements between a creditor and a debtor, classified as current or noncurrent based on the expected collection date.

Explain the difference between Interest-Bearing Notes and Noninterest-Bearing Notes.

Interest-Bearing Notes pay interest at maturity; Noninterest-Bearing Notes have interest discounted from the principal at the outset.

What is the purpose of a bank reconciliation?

To compare the bank balance with the company's own records to reconcile any differences, ensuring accurate cash management.