Summary: Acco Chapter 6

Read the summary and the most important questions on ACCO Chapter 6

• 1 Cash and reporting

  This is a preview. There are 1 more flashcards available for chapter 1
  Show more cards here

• Reporting: Cash Equivalents

  -Short-Term, Highly liquid investments that are:
  

  1. Readily Convertible to known amounts of cash
  2. So near maturity date their is risks of changes in value due to changes in interest rates. (i.e., Original Maturities <= 3 Months) 

  -EX: Treasury Bills, Commercial Paper and Money Market Funds

• Reporting: Restricted Cash

  -Held by a compnay for specific purpose and is therefore not available for immediate genreal use.
  -Report as:
  

  • Compensating Balances against Short-term borrwoings should be reported in current assets as. "Cash & Cash Equivalent"
  • Compensating Balances against long-term borrowings should be reported as noncurrent assets in "investments" or "Other assets"  

• Reporting: Bank Overdraft

  -Report as Current Liability->A/P

• 2 Receivables

  This is a preview. There are 5 more flashcards available for chapter 2
  Show more cards here

• Recognition of Accounts Receivable

  -Service organizations record a receivable when they provide services "on account" 
  -Merchandiser records A/R at the point of sale of merchandise "on account." 
  -EX JE:
  DR A/R
  CR Sales

• Variable Consideration of A/R: Trade Discounts

  -Reductions in the list price of a product offered by a seller to a buyer
  

  • e.g., 10% quantity discount
  • Customer billed net amount 

• Variable Consideration of A/R: Cash Discount (Sales Discount)

  -Used to induce early payment.
  EX: 2/10, n/30; 2% off if paid within 10 days || gross amount due in 30 days
  OR
  EX: 2/10 E.O.M., Net 30 E.O.M; 2% off if paid by any time by the 10th day of following month || With full amount by the 30th of the following month

• Cash/Sales Discount: Gross vs. Net Method

  -Gross Method: Recgonize receivable and revenue @ invoice price
  -Net Method: Same as gross method - cash discount calculated

• Variable Consideration of A/R: Sales Returns & Allowances

  -To account for companies should recgonize:
  

  1. Revenue and COGS when product are sold
  2. An asset (& corresponding adjustment to revenue and COGS) for the goods returned from customers.

  -EX JE: Recording Sale of product & COGS
  DR A/R
  CR Sales
  DR COGS
  CR Inventory
  -JE: Recording returns
  DR Sales returns & allowance
  CR A/R
  DR Returned Inventory
  CR COGS

• 3 Valuation of A/R

  This is a preview. There are 8 more flashcards available for chapter 3
  Show more cards here

• A/R Valuation: Uncollectible Accounts

  -An uncollectible A/R is a loss of revenue that requires proper entry in the accounts
  -Decreases A/R, Income, and Stockholders Equity
  -B/S, we report receivables on a "net" basis after AFDA, i.e., net amount expected to be collected  

• 2 methods for uncollectible accounts

  1.) Direct Write off Method: Not allowed under GAAP unless the amount uncollectible is immaterial
  2.) Allowance Method: Acceptable under GAAP when material in amount.