CH. 7 - ACCT 306

Accounts receivable, current

____ are amounts customers owe from credit sales, usually supported by an invoice, collected within 30 to 60 days, and classified as ____ assets.

trade, reduction, discounted, large

A ___ discount is a percentage ____ from the list price, and revenue is recorded at the ____ price, it allows companies to provide discounts to ____ customers

large customers

customers who buy a lot from the company

variable, uncertainty

Cash discounts are considered _____ consideration because there is _____ about whether the customer will qualify for the discount

gross, full, discount

Under the ____ method, record the sale at the ___ amount first, and if the customer takes the ___, record the discount later in Sales Discounts.

net, discounted, discount, lost

Under the ___ method, record the sale at the _____ amount first, and if the customer does not take the ____, record the ___ discount as Sales Discounts Forfeited.

Variable consideration

the transaction price can change because the final amount depends on a future event, like discounts, returns, bonuses, or refunds.

reduce, return

Sales returns and allowances ____ revenue and accounts receivable because the company either expects customers to ____ goods or gives them a price reduction to keep the goods.

estimates, customers

Sales return ____ are based on past history, but companies should adjust the estimate for changes in _____, payment terms, or economic conditions

allowance, GAAP, written, Allowance for Uncollectible Accounts.

The ____ method is required by ___ and records estimated bad debt expense before specific accounts are ___ off by using the contra-asset account ____.

Balance Sheet Approach, aging schedule, adjust

The ____ estimates the desired ending balance in Allowance for Uncollectible Accounts, often using an A/R ___, and bad debt expense is the amount needed to ___ the allowance to that ending balance.

allowance balance, existing, Bad Debt Expense

Under the Balance Sheet Approach, find the desired ending ___, subtract the ____ allowance balance, and record the difference as ____.

Income Statement Approach, percentage, Balance Sheet Approach, ending

The ___ estimates bad debt expense directly as a ___ of net credit sales, while the _____ estimates the desired ___ balance in the allowance account.

bank reconciliation, compares, differences

A ___ is an important cash control that ___ the company’s cash records to the bank balance and explains ___ from timing issues or errors.

Cash, debts, operations

___ includes amounts readily available to pay ___ or use in ___, such as currency, coins, and checking account balances

Cash equivalents, liquid, converted, 3 months, date

___ are short-term, highly ___ investments that are easily ___ to cash with little risk of loss, such as money market funds, treasury bills, and commercial paper. They must mature in ___ or less from the ___ of purchase.

separation of duties

Different people should handle different parts of the cash process so one person does not control everything

Cash receipts

money coming into the company, usually from customers

Opens the mail and prepares a list of all checks received with customer names and amounts.

In the cash receipts process, what does the first employee do?

To create a record of all checks received so the company can verify they were deposited and recorded.

Why does the first employee make a check listing?

physical custody

The employee is physically holding or handling the checks/cash.

Takes the checks and check listing to the person responsible for depositing the checks.

In the cash receipts process, what does the second employee do?

The deposit slip should be compared to the check listing.

What should be compared to make sure all checks were deposited?

Receives a copy of the check listing and records the cash receipts in the accounting records.

In the cash receipts process, what does the third employee do?

When the cash receipts are recorded in the accounting records.

When is cash added to the accounting system?

The check listing should be compared to the accounting records.

What should be compared to make sure all checks were recorded?

Cash disbursements

money going out of the company, usually payments to vendors.

vendor invoice

A bill from a vendor showing what the company owes.

To make sure the company actually received what it is being billed for

Why do companies match the vendor invoice to the receiving report?

The company records the liability and the related asset or expense

What happens after the invoice and receiving report match?

So the company can pay on time and keep support for the payment

Why are documents filed until the due date?

When the company prepares and mails the check.

When is cash removed from the accounting system?

When the vendor receives and cashes the check

When is cash removed from the bank?

The company records the check when it writes it, but the bank records it when the vendor cashes it.

Why can there be a timing difference between the accounting records and the bank?

outstanding check

A check the company recorded and mailed, but the bank has not processed yet

The expenditure should be authorized

What should happen before a check is issued?

Purchase order, vendor invoice, and receiving report.

What documents may be compared before payment is made?

Restricted cash, current, aside, specific

___ is cash not available for ___ use because it is set ___ for a ___ purpose or required by contract, such as plant expansion or future debt payments.

compensating balance, informal, legally binding, interest rate

A ___ is restricted cash a borrower must keep at the bank because of a loan or line of credit; if ___, it can stay in cash with note disclosure, but if ___, it is reported separately as current or noncurrent depending on the related debt. It results in a higher effective ___.