6.0 Cash and Receivables Accounting

Introduction to Cash and Receivables

• Cash and receivables are the two most liquid assets reported on a company's balance sheet.
• Proper accounting and reporting of these assets is crucial for stakeholders evaluating a company's liquidity.
• The upcoming discussion will cover the principles and guidelines for reporting cash, cash equivalents, accounts receivable, and notes receivable.

Cash and Cash Equivalents

• The chapter will begin by defining what should be included in cash and what qualifies as a cash equivalent.

Accounts and Notes Receivables

• Accounts and notes receivables should be reported at their net realizable value.
• Net realizable value aligns with the definition of an asset as the probable economic benefit expected to be received.
• Example: If a company has $100,000$ in accounts receivable, but anticipates $3\%$ will be uncollectible due to bad debts, the reporting must reflect this.

Long-Term Notes Receivables

• Long-term notes receivables should be reported in present value terms.
• This involves applying time value of money techniques like present value calculations as previously learned.

Using Receivables as a Source of Cash

• Companies can use receivables as an immediate source of cash through various methods:
  • Factoring: Selling accounts or notes receivables.
  • Assignment: Setting aside accounts and notes receivables as collateral to secure a loan.

Chapter Overview

• The chapter will cover the principles governing the reporting of cash, cash equivalents, and receivables.
• It will also explain how to interpret these financial statement numbers as an interested user.