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Cash equivalents
are short-term (generally up to 3 months), highly liquid investments that are convertible to known amounts of cash and that have no significant market value risk (for example, short-term deposits and units of money market funds).
On the balance sheet, all liabilities and assets in other currencies
you should indicate in euros (the currency of the country where company operates) and change accordingly to a rate on the balance sheet day. Change value in cash – and adjust it in a profit
Prepayment
not monetary asset. You should adjust only monetary assets!!!
Monetary assets: cash, cash equivalents (investments, deposits), accounts receivables
Possible problems with receivables
Currency exchange, bad debt
Deadlines
Annual report for period from 1 of Jan to 31 of Dec
30 Apr – deadline for publishing report – for public companies
30 June – deadline for private companies
Two methods for looking how to adjust receivables:
1. Look at the companies who overdue on the Internet
2.Based on the experience you had assign the probability of not receiving money back
Securing receivables
minimizing risks of not being able to receive the receivables.
Method for measuring book value of recievables
Recognize initially receivables at cost, subsequent measurement at amortized cost.
Amortized cost = initial cost less payments and impairment.
Impairment = value of (probably) uncollectible receivables. (reduced cost of crashed car f.e.)
Uncollectible accounts
bad debts
Allowance method
An adjustment is made at the end of each accounting period to estimate bad debts based on the business activity from that accounting period.
Contra account
is associated with another T-account. Adjustments to the original account.
Receivable expressed in foreign currency
recognise currency rate changes (same as with cash)!
Secured receivable
secure receivable (take away the car in case of lease)
Write the clause about taking risks by clients
Company is liquid when
Short-term assets>short term liabilities
Not the case, when convertibility of the asset takes longer than term for a liability payment
