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1、HowMuchCashShouldaBusinessHave?CashShort-term InvestmentsReceivablesFinancial Assets第1页/共62页第一页，共63页。HowMuchCashShouldaBusinessHave?AccountsreceivableMarketable securities (short-term investments)Cash (and cash equivalents)Collections from customersCash payments“Excess” cash is invested temporarilyI
2、nvestments are sold as cash is needed第2页/共62页第二页，共63页。TheValuationofFinancialAssetsEstimated collectible amount第3页/共62页第三页，共63页。CashCoins and paper moneyChecksMoney ordersTravelers checksBank credit card salesCash is defined as any deposit banks will accept.第4页/共62页第四页，共63页。Combined with cash on bal
3、ance sheetReportingCashintheBalanceSheetLiquid short-term investmentsStable market valuesMatures within 90 days of acquisitionCash Equivalents第5页/共62页第五页，共63页。Not available for paying current liabilitiesReportingCashintheBalanceSheetNot a current assetListed as an investment“Restricted” Cash第6页/共62页
4、第六页，共63页。Bank agrees in advance to lend money.ReportingCashintheBalanceSheetLiability is incurred when line of credit is used.Unused line of credit is disclosed in notes.Lines of Credit第7页/共62页第七页，共63页。TheStatementofCashFlowsSummarizes cash transactions for an accounting period.Statement of Cash Flo
5、wsIncludes cash and cash equivalents.第8页/共62页第八页，共63页。CashManagementlAccurately account for cash.lPrevent theft and fraud.lAssure the availability of adequate amounts of cash.lAvoid unnecessarily large amounts of idle cash.第9页/共62页第九页，共63页。UsingExcessCashBalancesEfficientlyCash available for long-te
6、rm investment may be used to finance growth and expansion of the business, or to repay debt.Cash not needed for business purposes should be distributed to the companys stockholders.第10页/共62页第十页，共63页。InternalControlOverCashlSegregate authorization, custody and recording of cash. lPrepare a cash budge
7、t.lPrepare a control listing of cash receipts.lRequire daily deposits.lMake all payments by check.lVerify every expenditure before payment.lPromptly reconcile bank statements.第11页/共62页第十一页，共63页。CashOverandShortCash Over and Short is debited for shortages and credited for overages.On May 5, XBAR, Inc
8、.s cash drawer was counted and found to be $10 over.第12页/共62页第十二页，共63页。BankStatementsShows the beginning bank balance, deposits made, checks paid, other debits and credits in the month, and the ending bank balance. Bank Statement第13页/共62页第十三页，共63页。ReconcilingtheBankStatementExplains the difference b
9、etween cash reported on bank statement and cash balance in depositors accounting records.Provides information for reconciling journal entries.第14页/共62页第十四页，共63页。ReconcilingtheBankStatement Balance per Bank+ Deposits in Transit- Outstanding Checks Bank Errors= Adjusted Balance Balance per Depositor+
10、Deposits by Bank (credit memos)- Service Charge - NSF Checks Book Errors= Adjusted Balance第15页/共62页第十五页，共63页。ReconcilingtheBankStatementAll reconciling items on the book side require an adjusting entry to the cash account. Balance per Depositor+ Deposits by Bank (credit memos)- Service Charge - NSF
11、Checks Book Errors= Adjusted Balance第16页/共62页第十六页，共63页。ReconcilingtheBankStatementPrepare a July 31 bank reconciliation statement and the resulting journal entries for the Simmons Company. The July 31 bank statement indicated a cash balance of $9,610, while the cash ledger account on that date shows
12、 a balance of $7,430.Additional information necessary for the reconciliation is shown on the next page.第17页/共62页第十七页，共63页。lOutstanding checks totaled $2,417.lA $500 check mailed to the bank for deposit had not reached the bank at the statement date.lThe bank returned a customers NSF check for $225 r
13、eceived as payment of an account receivable.lThe bank statement showed $30 interest earned on the bank balance for the month of July.lCheck 781 for supplies cleared the bank for $268 but was erroneously recorded in our books as $240.lA $486 deposit by Acme Company was erroneously credited to our acc
14、ount by the bank.第18页/共62页第十八页，共63页。ReconcilingtheBankStatement第19页/共62页第十九页，共63页。ReconcilingtheBankStatement第20页/共62页第二十页，共63页。Used for minor expenditures.PettyCashFundsHas one custodian.Replenished periodically.Petty Cash Funds第21页/共62页第二十一页，共63页。Short-TermInvestmentsBond InvestmentsCapital Stock
15、InvestmentsCurrent AssetsAlmost As Liquid As CashReadily MarketableMarketable Securities are . . .第22页/共62页第二十二页，共63页。APrincipleofAssetValuationMost short-term investments in marketable securities are classified as available for sale and appear on the balance sheet at their current market value.第23页
16、/共62页第二十三页，共63页。Lets turn our attention to accounts receivable.第24页/共62页第二十四页，共63页。UncollectibleAccounts If a company makes credit sales to customers, some accounts inevitably will turn out to be uncollectible.PAST DUE第25页/共62页第二十五页，共63页。ReflectingUncollectibleAccountsintheFinancialStatementsAt the
17、end of each period, record an estimate of the uncollectible accounts.Contra-asset accountSelling expense第26页/共62页第二十六页，共63页。TheAllowanceforDoubtfulAccountsThe net realizable value is the amount of accounts receivable that the business expects to collect.第27页/共62页第二十七页，共63页。WritingOffanUncollectibleA
18、ccountReceivableWhen an account is determined to be uncollectible, it no longer qualifies as an asset and should be written off.第28页/共62页第二十八页，共63页。WritingOffanUncollectibleAccountReceivableAssume that on January 5, K-Max determined that Jason Clark would not pay the $500 he owes.K-Max would make th
19、e following entry.第29页/共62页第二十九页，共63页。WritingOffanUncollectibleAccountReceivableAssume that before this entry, the Accounts Receivable balance was $10,000 and the Allowance for Doubtful Accounts balance was $2,500.Lets see what effect the write-off had on these accounts.第30页/共62页第三十页，共63页。WritingOff
20、anUncollectibleAccountReceivableNotice that the $500 write-off did not change the net realizable value nor did it affect any income statement accounts.第31页/共62页第三十一页，共63页。MonthlyEstimatesofCreditLosses At the end of each month, management should estimate the probable amount of uncollectible accounts
21、 and adjust the Allowance for Doubtful Accounts to this new estimate.Two Approaches to Estimating Credit Losses:1.Balance Sheet Approach2.Income Statement Approach第32页/共62页第三十二页，共63页。EstimatingCreditLossesTheBalanceSheetApproach Year-end Accounts Receivable is broken down into age classifications. E
22、ach age grouping has a different likelihood of being uncollectible. Compute a separate allowance for each age grouping.第33页/共62页第三十三页，共63页。EstimatingCreditLossesTheBalanceSheetApproachAt December 31, 2005, the receivables for EastCo, Inc. were categorized as follows: 第34页/共62页第三十四页，共63页。EstimatingCr
23、editLossesTheBalanceSheetApproachAt December 31, 2005, the receivables for EastCo, Inc. were categorized as follows: 第35页/共62页第三十五页，共63页。EstimatingCreditLossesTheBalanceSheetApproachAt December 31, 2005, the receivables for EastCo, Inc. were categorized as follows: 第36页/共62页第三十六页，共63页。EastCos unadju
24、sted balance in the allowance account is $500.Per the previous computation, the desired balance is $1,350.EstimatingCreditLossesTheBalanceSheetApproach第37页/共62页第三十七页，共63页。Lets look at another way to estimate credit losses!第38页/共62页第三十八页，共63页。EstimatingCreditLossesTheIncomeStatementApproachUncollecti
25、ble accounts percentage is based on actual uncollectible accounts from prior years credit sales.Focus is on determining the amount to record on the income statement as Uncollectible Accounts Expense. 第39页/共62页第三十九页，共63页。EstimatingCreditLossesTheIncomeStatementApproach第40页/共62页第四十页，共63页。EstimatingCre
26、ditLossesTheIncomeStatementApproachIn 2005, EastCo had credit sales of $60,000.Historically, 1% of EastCos credit sales has been uncollectible.For 2005, the estimate of uncollectible accounts expense is $600. ($60,000 .01 = $600)Now, prepare the adjusting entry for December 31, 2005.第41页/共62页第四十一页，共
27、63页。EstimatingCreditLossesTheIncomeStatementApproach第42页/共62页第四十二页，共63页。UncollectibleAccountsSummaryAging of ReceivablesEmphasis on Realizable ValueAccts. Rec.All. for Doubtful Accts.Balance Sheet Focus% of Credit SalesEmphasis on MatchingSalesUncoll. Accts. Exp.Income Statement Focus第43页/共62页第四十三页，
28、共63页。ConcentrationsofCreditRiskConcentrations of credit risk occur if a significant portion of a companys receivables are due from a few major customers or from customers operating in the same industry or geographic region.The FASB requires disclosure of all significant concentrations of credit risk
29、 in the notes to the financial statements.第44页/共62页第四十四页，共63页。RecoveryofanAccountReceivablePreviouslyWrittenOffSubsequent collections require that the original write-off entry be reversed before the cash collection is recorded.第45页/共62页第四十五页，共63页。DirectWrite-OffMethodThis method makes no attempt to
30、match revenues with the expense of uncollectible accounts.第46页/共62页第四十六页，共63页。IncomeTaxRegulationsandFinancialReportingDirect write-off method required to calculate taxable income.Taxable IncomeFinancial Statement IncomeGAAPGAAPGAAPGAAPAllowance methods better match expenses with revenues.第47页/共62页第
31、四十七页，共63页。InternalControlsforReceivableSeparate the following duties:Maintenance of the accounts receivable subsidiary ledger.Custody of cash receipts.Authorization of accounts receivable write-offs.第48页/共62页第四十八页，共63页。ManagementofAccountsReceivableCredit TermsMinimize Accounts ReceivableExtending c
32、redit encourages customers to buy from us . . . . . but it ties up resources in accounts receivable. 第49页/共62页第四十九页，共63页。ManagementofAccountsReceivableFactoring Accounts Receivable Credit Card Sales 第50页/共62页第五十页，共63页。A promissory note is an unconditional promise in writing to pay on demand or at a
33、future date a definite sum of money.NotesReceivableandInterestRevenueMakerthe person who signs the note and thereby promises to pay.Payeethe person to whom payment is to be made.第51页/共62页第五十一页，共63页。PROMISSORY NOTE Location Date after this date promises to pay to the order of the sum of with interest
34、 at the rateof per annum. signedtitleMiami, FlNov. 1, 2005Ninety daysPorter CompanyJohn CaldwellHall Company$10,000.0012.0%CFO, Porter CompanyNotesReceivableandInterestRevenuePorter Company is replacing an existing Accounts Receivable with this Note Receivable with Hall Company.第52页/共62页第五十二页，共63页。O
35、n November 1, 2005, Hall Company would make the following entry.NotesReceivableandInterestRevenue第53页/共62页第五十三页，共63页。Interest is a charge made for the use of money.The borrower incurs interest expense.The lender earns interest revenue.Interest rates down!NotesReceivableandInterestRevenueLender第54页/共
36、62页第五十四页，共63页。The interest formula includes three variables:Interest = Principal Interest Rate TimeWhen computing interest for one year, “Time” equals 1. When the computation period is less than one year, then “Time” is a fraction.NotesReceivableandInterestRevenueFor example, if we needed to compute
37、 interest for 3 months, “Time” would be 3/12.第55页/共62页第五十五页，共63页。What entry would Hall Company make on December 31, the fiscal year-end?NotesReceivableandInterestRevenue$10,00012% 60/360 = $200第56页/共62页第五十六页，共63页。What entry would Hall Company make on the maturity date?NotesReceivableandInterestReven
38、ue$10,00012% 90/360 = $300第57页/共62页第五十七页，共63页。If Porter Company defaulted on the note, Hall Company would make the following entry on the maturity date.NotesReceivableandInterestRevenue第58页/共62页第五十八页，共63页。FinancialAnalysisAccounts Receivable Turnover RateThis ratio provides useful information for ev
39、aluating how efficient management has been in granting credit to produce revenue. Net Sales Average Accounts Receivable第59页/共62页第五十九页，共63页。FinancialAnalysisAvg. Number of Days to Collect A/RThis ratio helps judge the liquidity of a companys accounts receivable. Days in Year Accounts Receivable Turnover Ratio第60页/共62页第六十页，共63页。EndofChapter7第61页/共62页第六十一页，共63页。感谢您的欣赏(xnshng)！第62页/共62页第六十二页，共63页。内容(nirng)总结How Much Cash Should a Business Have。Accts. Rec.。Uncoll. Accts. Exp.。Location Date。$10,00012% 90/360 = $300。感谢您的欣赏(xnshng)第六十三页，共63页。
