Chapter 6 Flashcards
Cash is the most _______ asset
liquid
What are examples of cash
Coin, currency. money orders, certified checks, cashier checks, bank drafts and savings accounts
What are cash equivilets
Short-term, highly liquid investments that are both…
a.) readily convertible cash
b.) so near their maturity that they present little risk of changes in values
What are examples of cash equivalents
Treasury bills, certificates of deposits, commercial paper, and money market funds
What is restricted cash
Cash that has to be used for a specific purpose
What are examples of restricted cash
Plant Expansion, retirement, or long-term debt, contractual agreements, compensating balances
What is a compensating balance
A minimum balance that must be maintained in a bank account and is used to offset the cost incurred by the bank to set up a loan
if it is a compensating balance against short-term borrowings it is reported as…
cash and cash equivilents
If a compensating balance is for a long-term borrowing then it is considered…
non current asset/investment
Bank Overdrafts are
when a company writes a check for more than it has in its cash account
How are bank overdrafts reported
As current liabilities,
If its for the same bank then it offsets against other cash accounts
What are receivables
Claims held against customers and others for money, good, services
How are receivables classified in the balance sheet
- Current or noncurrent
-Trade or non trade
Trade receivables are
receivables directly related to the good/service
What does the revenue recognition principal indicate
that a company should recognize revenue when there is a transfer of control
What is the transaction price for a receivable
The amount the company expects to receive minus any discounts, returns and allowances rebates and performance bonuses
What is the gross method?
That is when receivables are originally recorded w/out consideration of discount
What is the Net Method
when receivables are reported net (subtracted) of the discounts
