Ch 6 Cash and Receivables

Question 1

the most liquid of assets, is the standard medium of exchange and the basis for measuring and accounting for all other items

Answer 1

cash

Question 2

short-term highly liquid investments that are:
1. readily convertible to known amounts of cash
2. so near their maturity that they present insignificant risk of changes in value because of changes in interest rates

Answer 2

cash equivalents

Question 3

held by a company for a specific purpose and is therefore not available for immediate general use

Answer 3

restricted cash

Question 4

a minimum balance that must be maintained in a bank account, which is used to offset the cost incurred by the bank to set up a loan

Answer 4

compensating balance

Question 5

occurs when a company writes a check for more than the amount in its cash account

Answer 5

bank overdrafts

Question 6

a financial asset, often referred to as loans and __________, are claims held against customers and others for money, goods, or services

Answer 6

receivables

Question 7

the amount that customers owe a company for goods bought or services rendered

Answer 7

trade receivables

Question 8

oral promises of the purchaser to pay for goods and services sold

Answer 8

accounts receivable

Question 9

written promises to pay a certain sum of money on a specified future date

Answer 9

notes receivable

Question 10

arises from a variety of transactions outside the normal course of business

examples include:
1. advances to officers, employees, and subsidiaries
2. deposits paid to cover potential damages or losses, or as a guarantee of performance or payment
3. dividends and interest receivable
4. claims against insurance companies for casualties sustained, for tax refunds, or for damaged or lost goods

Answer 10

nontrade receivables

Question 11

the amount of consideration that a company expects to receive from a customer in exchange for transferring goods or services

Answer 11

transaction price

Question 12

companies expect to collect these within a year or during the current operating cycle, whichever is longer

Answer 12

current receivables

Question 13

prices may be subject to a trade or quantity discount, companies use these to avoid frequent changes in catalogs, to alter prices for different quantities purchased, or to hide the true invoice price from competitors

Answer 13

trade discounts

Question 14

companies offer these to induce prompt payment

they are generally presented in terms such as 2/10, n/30, or 2/10 EOM net 30, EOM

Answer 14

cash discounts (sales discounts)

Question 15

under this method, when a company determines a particular account to be uncollectible, it charges the loss to Bad Debt Expense

Answer 15

direct write-off method

Question 16

this method of accounting for bad debts involves estimating uncollectible accounts at the end of each period

Answer 16

allowance method

Question 17

this method ensures that companies state receivables on the balance sheet at the ______ which is gross accounts receivable less estimated uncollectible accounts

Answer 17

net amount expected to be collected

Question 18

it also serves as a control device by identifying which accounts require special attention based on how long they have been past due

Answer 18

aging schedule

Question 19

the FASB employs this, requires companies to measure expected uncollectible accounts and record bad debt expense on all receivables

companies look at both historical write-offs and forward looking data to best estimate the total allowance for existing receivables

Answer 19

current expected credit loss model (CECL)

Question 20

a note receivable is supported by a formal ______, a written promise to pay a certain sum of money at a specific future date

Answer 20

promissory note

Question 21

includes interest as part of their face amount

Answer 21

zero-interest-bearing notes (non-interest-bearing)

Question 22

approximate an applicable interest rate that may differ from the stated interest rate; this process of interest-rate approximation is called imputation and results in

Answer 22

imputed interest rate

Question 23

companies that buy receivables for a fee and then collect the payments directly from customers

Answer 23

factors

Question 24

sales “”, the factor assumes the credit-risk of some customers not paying their accounts receivable balance

Answer 24

without recourse

Question 25

sales “”, if a receivable becomes uncollectible, you will be responsible

Answer 25

with recourse

Question 26

assigning values to the components

Answer 26

financial component approach

Question 27

measures the number of times, on average, a company collects receivables during the period

calculated by dividing net sales by average (net) accounts receivable

Answer 27

accounts receivable turnover

Question 28

a simple method of obtaining reasonable control while adhering to the rule of disbursement by check

Answer 28

imprest system for petty cash

Question 29

checks cannot be cashed due to insufficient funds in the payor’s account

Answer 29

non-sufficient funds (NSF) checks

Question 30

a schedule explaining any differences between the bank’s and the company’s records of cash

Answer 30

bank reconciliation