Cash and Receivables Notes

These flashcards cover key concepts related to cash and receivables, including definitions and instances relevant to financial accounting and reporting.

Cash

Amounts readily available to pay off debt or to use in operations.

Cash Equivalents

Investments with a maturity date no longer than three months from the date of purchase.

Internal Control

A process designed to encourage adherence to company policies, promote operational efficiency, and minimize errors and theft.

Sarbanes-Oxley Act (Section 404)

Requires companies to document their internal controls and assess their adequacy.

Accounts Receivable

A claim to the future collection of cash, resulting from the sale of goods or services on credit.

Trade Discounts

A percentage reduction from the list price offered to large customers.

Sales Discounts

Reductions in the amount to be paid by a credit customer if paid within a specified period.

Direct Write-Off Method

A method of accounting for bad debts where accounts are written off when they become uncollectible.

Allowance Method

A method where uncollectible accounts are estimated and recognized in the same period as related sales.

Compensating Balances

An amount maintained in a bank account as part of a loan agreement.

Petty Cash Fund

A small amount of cash on hand used for low-cost items.

Receivables Turnover Ratio

A financial ratio that measures how efficiently a company collects receivables.

Discounting a Note Receivable

Selling a note before its maturity at a discount to receive cash immediately.

Factoring

The sale of accounts receivable to another company to accelerate cash flow.

Bank Reconciliation

The process of comparing the bank account balance with the company's own records and reconciling any differences.

Receivable Aging Schedule

A report showing the age of receivables and helping estimate the allowance for uncollectible accounts.

What is the formula for the Receivables Turnover Ratio?

$$\text{Receivables Turnover Ratio} = \frac{\text{Net Credit Sales}}{\text{Average Accounts Receivable}}$$

How is Average Accounts Receivable calculated for the Receivables Turnover Ratio?

$$\text{Average Accounts Receivable} = \frac{\text{Beginning Accounts Receivable} + \text{Ending Accounts Receivable}}{2}$$

How is the Net Realizable Value of Accounts Receivable determined?

$$\text{Net Realizable Value of Accounts Receivable} = \text{Total Accounts Receivable} - \text{Allowance for Doubtful Accounts}$$