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1、12-1Cash and Marketable SecuritiesCHAPTER 12CHAPTER 1212-2Learning objectivesl1. Understand the definition of cash, and cash flow.l2. Get a general idea of the pricing methods of marketable securities.12-3What is Cash? l Coinsl CurrencylMoney orders received from customersl CheckslMoney deposited in
2、 banks12-4Compensating balance In order to ensure a companys credit-granting arrangement, a company is forced to keep a minimum amount in the bank account. The minimum is called compensating balance. 12-5Application of CashAccount receivableInventoryPropertySuppliersEmployeesRentsConvertCant pay12-6
3、Cash and profitCash Profit 12-7Cash inflow & outflowcustomerslendersinvestorssalariessupplierscreditorsoutinoutoutinin12-8Positive and negative cash flowA positive cash flowA positive cash flowInflow of cash outflow of cashA negative cash flowInflow of cash outflow of cash12-9 Components of cash flo
4、wCash flowOperating cash flowInternal operationsInvesting cash flowInternal non-operating activitiesFinancing cash flow To and from external sources12-10lMarketable securities are government securities, bonds, or other securities which are invested by a company to avoid the excess cash lie idle .lTh
5、ey are liquid assets in that they can easily and quickly be converted into cash.lMarketable securities held as a temporary investment are classified as current assets.Marketable securities(Short-term investment)12-11Marketable securities(Short-term investment)1. have definite market value and be exc
6、hanged on the security market publicly; As short-term investment, marketable securities should :2. as surplus funds, have liquidity and profitability. 12-12Classification of marketable securitieslCredit securities lEquity securities lMixed securities 12-13Credit securities indicate the credit that i
7、s owned by the investors, namely, the claim to the principal and interest on maturity date. Classification of marketable securitiesEquity securities show the equity that the owner owns, namely, the claim to the increment of capital. Mixed securities have all the characteristics that Credit and equit
8、y securities have. The examples of mixed securities are preferred stocks and transferable debenture. 12-14Pricing Methods of Marketable Securities Value of securities investment at the beginning of accounting period If marketable securities are purchased with cash, the investment cost includes purch
9、ase price, taxes, and commission charges. The investment cost doesnt consist of the cash dividend declared but not collected and the uncollected mature security interest.12-15Pricing Methods of Marketable Securities If marketable securities are invested by the investors, the cost is the price determ
10、ined by the individual investing parties. If the securities are the non-cash assets paid by the debtors , the investment cost includes the book value of the assets and taxes excluding the cash dividend declared but not collected. 12-16Pricing Methods of Marketable Securities Value of securities at t
11、he end of accounting periodMarketable Securities are first recorded at cost. The cost of marketable securities includes purchase price, brokers fee, and other reasonable charge incurred during the purchase of securities. Method 112-17Pricing Methods of Marketable Securities To use the marketable val
12、ue as the price and record the investment income as the result of change of the marketable value. Method 212-18Pricing Methods of Marketable Securities To use the smaller one of the cost and the marketable price as the investment cost of securities to meet the prudence principle. Method 312-19Entry
13、of marketable securitiesNow, lets look at an example of Stevs Barber Shop12-20Entry of marketable securitiesStevs Barber ShopU.S. Treasury bills , $10,000.The commission charge is $200.Mature in three months at $15,000 12-21Entry of marketable securitiesJune 1 Dr. Marketable Securities $ 10,200 Cr.
14、Cash $10,200 The entries12-22Entry of marketable securitiesSuppose the securities purchased by Stev include cash dividend declared but not collected $400. The entriesJune 1 Dr. Marketable Securities $10,200 Interest Receivable 400Cr. Cash $10,60012-23Entry of marketable securitiesInterest incomeInco
15、me on marketable securities (short-term investments)RecordedReceivedDividends and interest on stocks and bonds held as short-term investmentsRecordedDividend incomeWhen is collected12-24Entry of marketable securitiesThe entriesSeptember 1 Dr. Cash $15,000Cr. Interest Income $3,000 Marketable Securities 12,00012-25WE ARE SAILING RIGHT ALONG!
