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Monetary Current Assets & Liabilities Flashcards

1
Q

What is a current asset?

A

Cash plus other assets that are expected to be sold or converted to cash during the current operating cycle

Includes: Demand deposits; cash equivalents; accounts receivable; inventory; pre-paids; and short-term investments

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2
Q

What is a current liability?

A

A liability expected to be paid within 12 months or less

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3
Q

How is the Quick Ratio calculated?

A

(Cash + A/R + Trading Securities) / Current Liabilities

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4
Q

How is the Current Ratio calculated?

A

Currents Assets / Current Liabilities

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5
Q

How is Working Capital calculated?

A

Currents Assets - Current Liabilities

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6
Q

How is A/R Turnover calculated?

A

Credit Sales / Average A/R

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7
Q

How is Inventory Turnover calculated?

A

COGS / Average Inventory

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8
Q

How is Day Sales in Inventory calculated?

A

365 / Inventory Turnover

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9
Q

How is Days to Collect A/R calculated?

A

Average A/R / Average Sales per Day

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10
Q

How are gain contingencies recorded?

A

They are NOT accrued due to Conservatism

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11
Q

When are loss contingencies recorded?

A

If Probable - they are accrued (if estimable) and disclosed

If Reasonably Possible - they are disclosed

If Remote - don’t accrue or disclose

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12
Q

What is a cash equivalent?

A

Investments with original maturities of three months or less from the date of purchase

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13
Q

Should cash restricted to use be disclosed?

A

Yes

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14
Q

What are the two types of Bank Reconciliation items?

A

Type A & B

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15
Q

What are Bank Reconciliation Type A items?

A

Items that do not require a journal entry

  1. Outstanding Checks
  2. Deposits in transit
  3. Bank Errors
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16
Q

What are Bank Reconciliation Type B items?

A

Items that require a journal entry to correct

  1. Unrecorded NSF checks
  2. Unrecorded bank charges
  3. Errors in cash account
  4. Unrecorded bank collections of notes receivable
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17
Q

What is Bank Reconciliation format #1?

A

Balance Per Bank
+- Type A Adjustments
Correct Cash Balance

Balance Per Books
+- Type B Adjustments
Correct Cash Balance

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18
Q

How should Accounts Receivables be disclosed on the Balance Sheet?

A

Net Realizable Value

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19
Q

How is Net Realizable Value calculated for Accounts Receivable?

A

A/R - Allowance for Doubtful Accounts = NRV

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20
Q

What kind of expense is Bad Debt Expense?

A

Selling Expense

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21
Q

What two types of methods are used to account for Bad Debt Expense?

A
  1. Direct Write-Off Method

2. Allowance Method

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22
Q

Is the Direct Write-Off Method in compliance with US GAAP?

A

No - because the write offs are not always captured in the same period as the sale that generated the A/R
***Exception: if the write-off is immaterial, then this method may be used

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23
Q

What are the JEs for the Direct Write Off Method?

A

Bad Debts Expense DR

A/R CR

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24
Q

What are the JEs for the Allowance Method?

A
  1. Adjusting Entry to set up the allowance:
    Bad Debts Exp DR
    Allowance CR
  2. Entry to write off bad debts:
    Allowance DR
    A/R CR
25
What are the two methods to determine the adjustment to Bad Debt Exp?
1. Annual Sales Method - Take a certain percentage of sales to come up with BDX 2. Aged A/R - Take a certain percentage of Aged A/R to come up with BDX
26
Annual Sales Method gives amount of BDX or Ending Balance in Allowance Account?
1. Annual Sales = Amount of BDX | 2. Aged A/R = Ending Bal in Allowance Account
27
How is the Allowance Ending Balance Figured?
``` Beg Bal of Allowance - Write Offs + Recoveries + Bad Debt Exp = End Bal of Allowance ```
28
What other terms are used for factoring?
Selling & Discounting
29
What is the most important determination in accounting for transfers of assets?
Whether the transaction is accounted for as: 1. sale of the asset 2. Secured loan with the asset as collateral
30
Sale of an asset must meet three criteria?
1. The transfered financial asset is isolated and beyond reach of the transferor or it's creditors (even in bankruptcy) 2. The Transferee can pledge or exchange the asset without unreasonable constraints or restrictions 3. The transferor does not maintain control or have a beneficial interest in the asset
31
Factoring Receivables with out recourse?
Means that all interests related to that receivable go to the factor (buyer).
32
Factoring Receivables with recourse?
Means that the seller still bears the risk of bad debts from the A/R sold
33
When is Servicing a distinct Asset or Liability?
When separated contractually from the underlying financial asset being serviced.
34
What two methods are used for Servicing?
1. Amortization | 2. Fair Value
35
What is a Secured Borrowing?
Asset pledged as collateral for a loan.
36
How should you account for collateral?
1. If the Transferee does not have control: The Transferor should carry the collateral as an asset & the Transferee should not record anything ``` 2. The Transferee has control of the collateral The transferee should record the asset at FV and also a liability to return it. The transferor should re-class the asset as a receivable and report it separately in the BS ```
37
Contingent Liability?
An obligation that exists but is dependent on uncertain future events
38
What is half year convention?
If a balance is accrued evenly throughout the year, assume the beginning period started in the middle of the year
39
If a Contingent Liability is probably and reasonably estimatable?
Record a Journal Entry & Disclosure Called a Provision under IFRS
40
If a Contingent Liability is reasonably possible?
Disclose Called a Contingency under IFRS
41
If a Contingent Liability is remote?
Do nothing
42
Present Value also means what?
Discounted
43
The minimum that must be accrued for Compensated Absences is?
The vested amount
44
Working Capital Formula?
Total Current Assets - Total Current Liabilities
45
Fair Value Option for Warranties?
FMW may be used if you can pay someone to handle your warranty obligations
46
Conservatism?
Recognize losses immediately (if the amount is probably and reasonable), but only recognize gains when realized
47
What does a seller use to account for probably sales discounts, sales returns, and sales allowances?
Due From Factor (Holdback) Account
48
How should a Servicing Asset/Liability be amortized?
In proportion to and over the period of estimated Net Servicing Income/Loss
49
How should Servicing Assets be initially recorded?
FMV
50
What are the methods used to generate cash from A/R?
1. Assignment - Obtaining a loan using the A/R as collateral | 2. Factoring - selling A/R
51
What is needed to be classified as cash?
Item must be: 1. Readily available for use 2. Not legally restricted
52
If weird, non normal number of days is given for AR calculation use what for days?
365 and 360 for even, normal days
53
Are Treasury Bills considered Cash?
Yes
54
Are Trading Securities or Available for Sale Securities considered Cash?
No
55
Another name for uncollectable accounts expense?
Bad Debts Expense
56
What are the two types AR recording methods?
1. Gross | 2. Net
57
Gross Method of recording AR records the sales discount when?
When the discount is realized
58
The net method of recording AR records sales discounts when?
When the sale is made. If the discount is not realized then the offset is recorded to Sales Discounts Not Takenp

FAR (28 decks)

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