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Flashcards in F4 Notecards Deck (38):
1

Working Capital definition

-Current assets - current liabilities
-Measures solvency of a company (ability to pay its debts)

2

Examples of Current Assets

-Cash
-Trading securities
-AR & NR
-Trade installment receivables
-Inventories
-Prepaid expenses
-Cash surrender value of life insurance (if intent to surrender for cash is during normal operating cycle)

3

Examples of Current Liabilities

-Trade accounts and NP
-Current portions of long-term debt
-Cash dividends payable
-Accrued liabilities
-Payroll liabilities
-Taxes payable
-Advances from customers

4

US GAAP: How to classify ST obligations expected to be refinanced:

-May be moved to noncurrent section if company intends to refinance and has the ability to

5

Ability to Refinance shown by:

1- Actual refinancing before statements OR
2- Existence of a noncancelable financing agreement

6

IFRS: How to classify ST obligations expected to be refinanced:

Have to be shown in current section- no special treatment

7

Cash & Cash Equivalents definitions:

Cash- currency and demand deposits
Cash Equivalents- includes ST highly liquid investments both readily convertible to cash and has an original maturity of 90 days or less

8

Examples of Cash & Cash Equivalents:

-Coin/currency/petty cash
-Checking accounts
-Savings accounts
-Money market funds
-Negotiable paper
-Compensating balances that are NOT legally restricted

9

Items NOT cash or cash equivalents:

-CDs with maturity over 90 days
-Legally restricted deposits held as compensating balances

10

Definition of Restricted Cash

Cash that has been set aside for specific use

11

Definition of Unrestricted Cash

Cash used for all current operations

12

If cash restriction is associated with a CA or CL:

Classify as current asset by separate from unrestricted cash

13

If cash restriction is associated with a noncurrent A or L:

Classify as a noncurrent asset but separate from either Investments or Other Assets section

14

2 Types of Bank Reconciliations

1- Simple Reconciliation
2- Reconciliation of cash receipts and disbursements

15

Goal of simple bank reconciliation:

To calculate the true balance

16

How to treat items in a simple reconciliation:

-Deposits in transit - add to bank balance
-Outstanding checks - subtract from bank balance
-Service charges - subtract from books
-Bank collections - add to books
-Errors- add/subtract
-NSF Items - subtract from books
-Interset Income - add to books

17

Accounts Receivable definition:

-Oral promises to pay debts
-Classified as trade receivables or non-trade receivables

18

NRV of AR definition:

The balance of the AR account adjusted for allowances and sales returns

19

Discounts

-For speedy payments
-Can be net or gross

20

Gross Method of Discounts

Ignores discount during booking. If discount taken, book adjustment later

21

Net Method of Discounts

-Records the discount at the beginning. If discount not taken, book adjustment later
-If not taken, "Sales Discounts not taken" account needs to be credited

22

Trade Discounts

-Emphasis on quantity, not speed
-Applied sequentially, not added together

23

General Rule of recognizing sales returns and allowances

-Wait until actual
-Only if past experience shows material percentage, then you estimate and accrue
-Estimated exchanges do not affect anything

24

2 method of recognizing uncollectible accounts receivable

1- Direct Write-off Method
2- Allowance Method

25

Direct Write-Off Method

-Not GAAP (because it's a nonaccrual basis)
-Usually just used for tax purposes
-Wait to see who doesn't pay, and then write off

26

Allowance Method

-GAAP
-Estimate and book it now

27

3 Methods under the Allowance Method

1- % Sales Method (I/S approach)
2- % AR Method (B/S approach)
3- Aging AR Method (B/S approach)

28

Allowance Method for Subsequent Collection of an AR balance already written off (2 steps)

Step 1: Reverse the write-off entry
Step 2: Record the cash collection on the account

29

Definition and accounting treatment for Pledging:

-Uses existing AR as collateral for a loan
-Dr. Cash; Cr. NP
-Requires footnote

30

2 Ways to Factor AR:

1- Without Recourse
2- With Recourse

31

Without Recourse

"True Sale"
-sale is final; assumes risk of any loss

32

With Recourse

-Can be a sale or loan
-Factor has option to re-sell any uncollectible AR back to the seller

33

In order for a "with recourse" item to be a sale, ALL must apply:

-Obligation for uncollectible accounts can be reasonably estimated
-Surrenders control of future benefits
-Cannot be required to repurchase

34

Due from Factor

Security- reflects proceeds retained by factor

35

Notes Receivable definition

-Written promises to pay debt
-Current asset or LT asset

36

Discounting Notes Receivable

Selling notes to get cash now

37

Discounting NR with recourse

Holder remains liable

38

Discounting NR without recourse

True sale- no further liability