Professional Documents
Culture Documents
Cash
Cash equivalents
Investment < 3 months (Treasury bills, commercial
paper, money market funds, CD)
Restricted cash
Current or long-term assets
plant expansion, retirement of long-term debt
compensating balances
Bank overdraft
Write a check for more than in cash account
Current liability
Not offset against the cash account
2
Receivables
Claims held against customers and others
for money, goods, or services.
A/R (accounts receivable)
N/R (note receivable)
Trade discount
Cash (sales) discount
2/10, n/30
8
Assets
Assets
Current
CurrentAssets:
Assets:
Cash
Cash
Accounts
Accountsreceivable,
receivable,net
netof
of$25
$25allowance
allowance
for
fordoubtful
doubtfulaccounts
accounts
Inventory
Inventory
Prepaids
Prepaids
Total
Totalcurrent
currentassets
assets
Fixed
FixedAssets:
Assets:
Office
Officeequipment
equipment
Furniture
Furniture&&fixtures
fixtures
Less:
Less:Accumulated
Accumulateddepreciation
depreciation
Total
Totalfixed
fixedassets
assets
Total
TotalAssets
Assets
$$ 346
346
475
475
812
812
__ 40
40
1,673
1,673
5,679
5,679
6,600
6,600
(3,735)
(3,735)
8,544
8,544
$10,217
$10,217
13
Valuation of A/R
Net realizable value
The net amount of cash received
Allowance method
Estimate % of uncollectible account
Use contra account to reduce A/R
Debit Bad Expense
credit allowance for Doubtful Account
14
[A] $11,000
[B] $2,200
[C] $1,600
[D] $600
16
[A] $25,000
[B] $9,000
[C] $16,000
[D] $34,000
17
[A] $36,000
[B] $19,000
[C] $9,000
[D] $27,000
18
Recovery of uncollectible
account
Collect on write-off account
Debit A/R, credit Allowance
Debit cash, credit A/R
example
Collect 300 of the above 500
21
22
Allowance
E7-9, E7-14 (3) (4)
P7-3, P7-6, P7-4
24
Notes Receivable
27
28
Difference
Discount or premium
Depends on two interest rate
Effective market i
Face i stated on the note
30
Notes Receivable
Interest Rates
Note Issued at
Face Value
Premium
Discount
32
At discount:
Cash < N/R
At premium
Cash > N/R
33
$8,000
8,000
8,000
8,000
8,000
6
34
35
PV of Interest
Table 6-4
Number
of
Periods
4%
6%
1
5
10
15
20
0.96154
4.45183
8.11090
11.11839
13.59033
0.94340
4.21236
7.36009
9.71225
11.46992
$8,000
Interest
Discount Rate
8%
0.92593
3.99271
6.71008
8.55948
9.81815
3.99271
Factor
10%
0.90900
3.79079
6.14457
7.60608
8.51356
12%
0.89286
3.60478
5.65022
6.81086
7.46944
$31,942
Present Value
36
PV of Principal
Table 6-2
Number
of
Periods
1
5
10
15
20
4%
0.96154
0.82193
0.67556
0.55526
0.45639
$100,000
Principal
6%
Discount Rate
8%
0.94340
0.74726
0.55839
0.41727
0.31180
0.92593
0.68058
0.46319
0.31524
0.21455
.68058
Factor
10%
0.90909
0.62092
0.38554
0.23939
0.14864
12%
0.89286
0.56743
0.32197
0.18270
0.10367
$68,058
Present Value
37
Summary
$ 31,942
68,058
Account Title
Notes receivable
Debit
Cash
Interest revenue
Credit
100,000
Cash
Dec. yr. 1
$100,000
100,000
8,000
8,000
($100,000 x 8%)
38
Zero-interest-bearing note
Exercise Balance Bar Co. receives a 5-year, $100,000
zero-interest-bearing note. The market rate of interest
for a note of similar risk is 6 percent. How does Balance
Bar record the receipt of the note?
Present value of Principle:
$100,000 (PVF5, 6%) = $100,000 x .74726 = $74,726
$100,000
$0
6
39
Dec. yr. 1
Account Title
Notes receivable
$74,726
Debit
Credit
100,000
25,274
Cash
74,726
4,484
4,484
($74,726 x 6%)
40
Amortization Schedule
Non-Interest-Bearing Note
Cash
Received
Date of issue
End of yr. 1
End of yr. 2
End of yr. 3
End of yr. 4
End of yr. 5
6%
Interest
Revenue
$
4,484
4,753
5,038
5,340
5,660
25,274
Discount
Amortized
$
4,484
4,753
5,038
5,340
5,660
25,274
Carrying
Amount
of Note
$ 74,726
79,210
83,962
89,000
94,340
100,000
41
$ 62,092
30,326
$ 92,418
42
Amortization Schedule
Interest-Bearing Note
Cash
Received
Date of issue
End of yr. 1
End of yr. 2
End of yr. 3
End of yr. 4
End of yr. 5
8,000
8,000
8,000
8,000
8,000
40,000
10%
Interest
Revenue
$
9,242
9,366
9,503
9,653
9,818
47,582
Discount
Amortized
$
1,242
1,366
1,503
1,653
1,818
7,582
Carrying
Amount
of Note
$ 92,418
93,660
95,026
96,529
98,182
100,000
43
Account Title
Notes receivable
Debit
100,000
7,582
Cash
Dec. yr. 1
92,418
Cash
8,000
1,242
Interest revenue
Credit
9,242
($92,418 x 10%)
44
45
46
Secured borrowing
Securitization
Sell a pool of assets, such as A/R, N/R,
Mortgages
48
Factoring
Sale without recourse
Buyer assumes risk of collectibility
Any charge is treated as loss on sale of A/R
Due from factor is % A/R reserved to cover
probable adjustment
JE
Debit cash, due from factor, loss
Credit A/R
49
Factoring
Sale with recourse
Seller assumes risk
Include recourse provision
guarantees payment to buyer if collection fails
Recourse liability with a specific $ amount
JE
Debit cash received, due from factor, loss (plug)
Any finance charge is included in loss
51
E7-14, 7-17
53
55
a.
Cash:Dr 820k
Int ex: %of commission *A/R hoac loan :Dr 30k
N/P:Loan: Cr 850k
b. Cash:Dr 400k
Sale Dist:Dr 900
Allowance:Dr 1060
A/R:Cr
c. Int Exp:Dr (N/P*int rate) 8500=850k*12%/12
NP:Dr 400k
Cash:Cr
56
a. AR: 1200000(Cr)
Cash: 1104000
Due from factor(cover receivable): 24000
Loss on sale: 72000
b. AR
Due to
Cash
Int revenue
c. Loss:72000+21000
Liability: 210000
58