Professional Documents
Culture Documents
Submitted by:
Neelesh Vasnani
BSIE 3
Submitted to:
Mrs. Lorafe Lozano
IE 310 Instructor
Submitted on:
October 10, 2014
Cash Receipts by email - Control of cash receipts that arrive through the mail starts with the person who opens the mail.
Preferably, two people are assigned the task of, and are present for, opening the mail. In this case, theft of cash receipts
by mail requires collusion between these two employees.
Control of Cash Disbursements- is especially important as most large thefts occur from payment of fictitious invoices.
Voucher system of control upon getting a bill, the company verifies the charges, prepares a voucher, and inserts the
bill. This transaction is then recorded in the journal entry. If the amount is due, check is issued; if not, voucher is filed for
due payment.
Petty Cash System of control utilized for small payments required for items such as postage, courier fees, minor
repairs, and low-cost supplies. To avoid the time and cost of writing checks for small amounts, a company sets up a
petty cash fund to make small payments.
x 365
Installment sales and receivables - companies allow their credit customers to make periodic payments over several
months.
Bad Debts also called uncollectible accounts, are accounts that some customers dont pay what they promised
Two methods to account bad debts:
Direct Write-Off Method records the loss from an uncollectible account the moment it is known to be uncollectible.
Two accounting principles must be applied when using this: matching principle (bad debts should be reported in the
same period as the sales), and the materiality principle (bad debts with tiny effect on financial statements should be
ignored).
Allowance Method - matches the estimated loss from uncollectible accounts receivable against the sales they produce.
Pledging Receivables - A company can raise cash by borrowing money and pledging its receivables as security for the
loan.
Accounts Receivable Turnover - is a measure of both the quality and liquidity of accounts receivable. It indicates how often,
on average, receivables are received and collected during the period.
Depreciation expense =
2. Unit-of-Production Method - charges a varying amount to expense for each period of an assets useful life depending on
its usage.
Depreciation expense =
3. Declining Balance Method gives larger depreciation expense in the early years of an assets life and less depreciation in
later years. It uses a depreciation rate that is a multiple of the straight line rate and applies it to the assets beginning of
period book value.
NATURAL RESOURCES - are assets that are physically consumed when used. Examples are standing timber, mineral deposits,
and oil and gas fields. Instead of depreciation, depletion is considered for natural resources.
Depletion expense =
INTANGIBLE ASSETS - are nonphysical assets that revolve around long term rights, privileges, or competitive advantages.
Examples are patents, copyrights, licenses, goodwill, trademarks, leaseholds, and franchises.
Total Asset Turnover measures the companys ability to generate sales and incomes from assets.
Employer Payroll taxes employers must pay payroll taxes in addition to those required for employees. Employer
taxes include FICA and unemployment taxes.
Estimated Liabilities such as employee benefits like pensions, health care, vacation pay, and warranties offered by seller.
Example of Vacation benefits:
Multi period Liabilities liabilities that extend over multiple periods. These often include unearned revenues and notes
payable. Multi period liabilities can also be estimated liabilities.
Contingent Liabilities a potential obligation that depends on a future event arising from a past transaction or event, an
example is a pending lawsuit.
Potential Legal Claims many companies are at the risk of being sued. A potential claim is recorded in the accounts
only if payment for damages is probable and the amount can be reasonably estimated.
Debt Guarantees when a company guarantees the payment of debt owed by a supplier or customer.
Other Contingencies other examples of contingencies are environmental damages, tax assessments, insurance
losses, and government investigations.
Uncertainties all organizations face this: events like natural disasters and development of new competing products.
THESE HOWEVER ARE NOT PART OF CONTINGENT LIABILITIES.
Time interest earned ratio a company incurs interest expense on many of its current and long term liabilities.
2 alternative approaches
Analyzing the cash account Inflows and outflows are recorded in the cash account, thus its natural to look into here.
Analyzing non cash accounts aside from debits and credits showing up in the cash account, they obviously show up
in the respective partner accounts.
Information to prepare the statement: balance sheet, income statement, additional information
Methods of Reporting the net cash is the same for both methods
Direct method separately lists each major item of cash receipts and each major item of cash payments.
Indirect method reports net income, then adjusts it for items needing net cash provided by operating activities. It
does not report individual items of cash inflows and outflows, but reconciles net income with adjustments instead.
Summary of Adjustments in Indirect method:
Cash Flow on Assets ratio helps in decision making of the amount and timing of cash flows.