CH 8

Intermediate Accounting
Thomas H. Beechy
Schulich School of Business,
York University
Joan E. D. Conrod
Faculty of Management,
Dalhousie University
PowerPoint slides by:

Bruce W. MacLean,
Copyright 1998 McGraw-Hill Ryerson Limited, Canada
home
back
next
Current Monetary Balances

Thomas H. Beechy
Schulich School of Business,
York University
Joan E. D. Conrod
PowerPoint slides by:

Bruce W. MacLean,
home
back
next
Introduction
One objective of financial reporting is to help users

assess the amounts, timing, and uncertainty of future
cash flows. Current monetary balances receivables
and payables have the most immediate impact on the
cash position, so its important to get them right!
This chapter develops the accounting principles for the
recognition, measurement, and reporting of the primary
category of liquid resources: cash, accounts receivable,
and notes receivable, and the primary short-term claims
to cash, the various types of payables. These financial
statement elements are all financial instruments that
represent cash or claims to cash.
home
back
next
Definition Of Monetary Items
The CICA Handbook defines monetary items as

follows:
Monetary financial assets and financial liabilities (also

referred to as monetary financial instruments) are financial
assets and financial liabilities to be received or paid in fixed
or determinable amounts of money. [CICA 3860.03]
There are two key aspects of this definition:
the asset or obligation must be settled by means of cash,

and.the amount of asset, claim or obligation must be fixed
(or determinable) by the nature of the transaction that gave
rise to the balance.
home
back
next
Definition Of Monetary Items
Cash and cash equivalents;.

Accounts and notes receivable and
payable
their amount has been fixed or
predetermined by means of a
transaction, such as the sale of goods
or services, the purchase of goods or
services, or the borrowing of a fixed
sum of money.
Inventories and equity investments
cash value is not fixed in advance. The
amount of cash to be obtained from
such items will depend on future market
conditions.
home
back
next
Characteristics Of Cash
And Cash Equivalents
The
Cash
equivalents
are items
that canonly
readily
be converted
to cash. Theyavailable
include:
cash account
includes
those
items immediately
to
pay obligations.
Cashknown
includes:
treasury
bills (widely
as T-bills),
balances investment
on deposit with
financial(GICs),
institutions,
guaranteed
certificates
commercial
paper (short-term notes receivable from other
coins and currency,
companies),
petty cash, and
money
market
fundsinstruments accepted by financial institutions
certain
negotiable
An overdraft
is a negative
bank and
account
balance and
is reported
ascheques,
a separate
for immediate
deposit
withdrawal,
like
cashier's
current
liability on the balance sheet, regardless of its inclusion in cash on the
certified
cheques, and
cash flow statement.
money orders.
A compensating
balance is a minimum balance that must be maintained in a
depositor's account as support for funds borrowed by the depositor should not be
included in the current cash account because they are not currently available for
use.
home
back
next
Internal Controls For Cash
The risk of theft is directly related to the ability of

individuals to access the accounting system and
obtain custody of cash. - division of duties
Firms address this problem through an internal
control system, designed to protect all assets and
the integrity of the information system.
There are two internal control issues for cash: (1)
ensuring that cash is not stolen, and (2) making sure
that cash is wisely managed to maximize returns.
home
back
next
Internal Control And Bank Accounts
Fred Jones
The record keeper must
Pay to the order of
not have the authority to
sign cheques, or at least
Bank of Nova Scotia
without a Co-signer.
Bank accounts provide one
means to physically safeguard cash balances, but
theyre also integral to proper cash management.
The bank account provides an opportunity to check the
accuracy of the accounting records. Its the only general
ledger account that another company runs parallel
home
back
next
Internal Control
Policies and procedures

designed to
Protect assets
Ensure compliance with
laws and company policies
Provide accurate
accounting records
Evaluate performance
home
back
next
Internal
Controls For
Cash
INTERNAL
CONTROL
FOR CASH
Separate custody of and accounting for cash

Account for all cash transactions
Maintain only the minimum cash balance needed
Provide for periodic test counts of cash balances
Permit reconciliation of
ledger and bank cash
account balances
Achieve an adequate
return on idle cash
Result in the physical
control of cash
home
back
next
Internal Controls OF
For Cash
Receipts
CONTROL
CASH
RECEIPTS
Separate responsibility for handling cash, recording

cash transactions, and reconciling cash balances
Cash-handling and cash-recording activities assigned to
different people
Close supervision of
cash-handling and
cash-recording activities
home
back
next
Internal Controls For Cash

Disbursements
Separate responsibilities for cash disbursement

documents, cheque writing, cheque signing, cheque
mailing and record keeping
All disbursement, except petty cash, made by cheque
Close control of petty cash funds
Adequate source documents
must support all cheques
Proper supervision of cash
disbursement activities
home
back
next
Reconciliation Of Bank And Book Cash

Balances
Compare all deposits made in the bank account with

those in the books. If there are differences, determine
why.
Compare all cheques and charges that went through
the bank account to the cash disbursements journal.
Make journal entries for all adjustments to the book
balance, and inform the bank of any errors made by the
bank, so they can be corrected before the end of next
month.
See Exhibit 8-1
home
back
next
EXHIBIT 8-1
Information for Bank Reconciliation
Bank Statement
August 1 balance
Deposits recorded in August
Cheques cleared in August
Account receivable collected
(including $100 interest)
NSF cheque, J. Fox, $300
plus $30 fee
August service charges
August 31 balance
Additional
data,
of July:
Additional
data,
endend
of August:
Deposits in transit, $5,000, and
Cash on hand (un-deposited), $990.
chequesdata,
outstanding,
$8,000 A
Additional
end
of August:
This
amount
will
be
deposited
Additional
data,
end of August:
The
(these
two
amounts
were
taken
cheque
written
by
West
in
the
amount
September
service
$200 include a $10
fromcharges
the1 Julyofbank
of $240 for a repair bill in August is
reconciliation).
charge
to a company named Weston
included in the cleared cheques. West
Company that was charged to West
recorded the cheque for $420, the
Company in error
correct amount, debiting repair
expense. The cheque was for the
wrong amount. The payee will bill
West for the remaining $180 due.
$32,000
$77,300
-71,240
Company's Cash Account

August 1 balance
August deposits*
August disbursements**
August 31 balance
1,100
-330
-200
6,630
$38,630
$29,990
75,300
-70,420
4,880
$34,870
* Per cash receipts journal

** Per cash disbursements journal
home
back
next
EXHIBIT 8-2
WEST COMPANY
Bank Reconciliation
31 August 20x2
Bank Statement
Ending bank balance, August 31
$38,630
Additions: Cash on hand (undeposited)
$990
Deposits in transit, August 31
($5,000 + $75,300 - $77,300)
3,000
Bank error re: service charge
10
Cheques outstanding August
31 ($8,000 + $70,240 Deductions: $71,240)
-7,000
-3,000
Adjusted balance
$35,630
Book Balance
Ending
book balance,
Augustat
1 end of prior period
$34,870
Outstanding
cheques
Accounts
receivable
collected
Deposits
in transit
at the
endcurrent
of priorperiod
period
Cheques
written
during
Additions: by bank
1,000
Deposits
for
the
current
period
(per
books)
(per cash Interest
payments journal, as corrected:
100
Total amount
that could
Error in recording
repair have been deposited
$70,420
$180
payment
overstatement)
payment
180
Deposits
shown
in
bank
statement
Total cheques
that could
have cleared
NSF cheque,
J. Fox, $300,
Deposits
endbank
of current
Deductions:
plus in
$30transit
NSF
fee at in
-330 period
Cheques
cleared
shown
statement
Bank service charges
-190
760
Outstanding
cheques
at end
Adjusted
balance
$35,630
Copyright
1998
McGraw-Hill
Ryerson Limited,
Canadaof current period
Cash
hand.
This
is
Bank on
errors.
The
bank
the
cash the
recorded
as a
charged
company
debit
to the
companys
$10 too
much
service
cash
account,
not to
charge.
Theyllbut
have
deposited
at receivable
month-end.
Account
beBank
informed
of the
service
charges
Cash
or
cheques
are An
collected
by bank.
Error
in
recording
error,
and
appropriate
The bank debited
being
held
- hopefully
account
receivable
for
$
8,000
West
recorded
a
$240
documentation
West's
account funds
for
Non-sufficient
$a 5,000
in
safe
by
the
$1,000
plus
$100
cheque
in
the
cash
(NSF)
cheque
A
$300
provided
so
thatcharges
the
$190
of
bank
75,300from
company
at
August
31.J.
accrued
interest
was
cheque
customer
disbursements
journal
bank
will
put
the
$10
in80,300
August for cheque
This
amount
iswas
added
to
collected
by
the
bank
Fox,
which
not
70,240
as
$420,
debiting
back
in
the
account
by
printing,
chequing
supported
by recorded
sufficient
(77,300)
the
bank
balance.
but 78,240
wasthe
not
accounts
payable
and
reversing
charge
account
privileges,
funds
in
Fox's
chequing
$ 3,000
bycash
Westfor too
(71,240)
crediting
and
collection
of to
account,
was returned
$ethe7,000
much.
Westh by
bank.
back
next
o mcheques.
customer
Bank Reconciliation - Entries

GENERAL JOURNAL
Date
7/31
Description
Page 13
PR
Debit
Credit
1100
Cash
Accounts Receivable
Interest Revenue
7/31
Accounts Receivable, J Fox
1000
100
300
Cash
7/31
7/31
300
Miscellaneous Expense
Cash
190
Cash
180
190
Accounts Payable
180
home
back
next
Accounting For Receivables
Receivables represent claims for money, goods, services, and other

non-cash assets from other firms. Receivables may be current or
non-current, depending on the expected collection date.
Accounts receivable are amounts owed by customers for goods
and services sold in the firm's normal course of business..
Notes receivable are usually supported by formal promissory
notes.
Non-trade receivables arise from many other sources, such as
tax refunds, contracts, investments, finance receivables,
installment notes, sale of assets, and advances to employees.
The main accounting issues pertaining to receivables are
recognition and measurement. Both are affected by collectibility
home
back
next
Recognition And Measurement Of Accounts

Receivable
Recognized when there has been an agreement with a customer

Valued at the original exchange price between the firm and the
outside party
Credit balances (from prepayments or overpayments) are
reclassified and reported as liabilities
The receivables are meant to be an approximation of the cash
that will be collected.
Net realizable value, adjust for things like:
cash discounts,
sales returns, and
allowances for uncollectible accounts.
home
back
next
Accounts Receivable
Cash Discounts are used to . . .

Increase sales
Encourage early payment by customers
Increase the likelihood of collections of
accounts receivable
home
back
next
Cash Discounts
2/10, n/30
Percentage
Discount
# of Days
Discount is
Available
Otherwise,
Net (or All)
is Due
Net Amount is
Due in this #
of Days
home
back
next
Cash Discounts
Gross Method - Record sales discounts only if the customer pays within
the discount period.
Net Method - Record sales discounts only if the customer fails to pay
within the discount period.
GENERALJOURNAL
JOURNAL
GENERAL
Date
Date
Paytime
At
within
Late
ofPayment
sale
discount period
Description
Description
GROSSMETHOD
METHOD
GROSS
Cash
Cash
Accounts
Receivable
Accounts
Receivable
Sales Discount
Sales
Revenue
Accounts Receivable
NETMETHOD
METHOD
NET
Cash
Accounts
Receivable
NET METHOD
SalesRevenue
Discount Forfeited
Cash Sales
AccountsReceivable
Receivable
Accounts
PR
PR
Page 42
52
Page
52
Debit
Debit
5,000
5,000
4,950
50
5,000
4,950
4,950
home
Credit
Credit
5,000
5,000
5,000
50
4,950
4,950
4,950
back
next
Sales Returns And Allowances
Sales returns occur when merchandise is returned by the

customer;
Sales allowances occur when a company gives a price
reduction to a customer who is not completely satisfied with
purchased merchandise but does not actually return it.
Sales returns and allowances are significant amounts in some
industries, including retailing and book publishing. Of course,
if returns are material and inestimable, sales revenue cannot
be recorded until after the uncertainty is resolved.
Sales Returns and Allowances is a contra account.
account It reduces
Sales Revenue and Allowance for Sales Returns and
Allowances is a contra account to Accounts Receivable
home
back
next
Uncollectible Accounts Receivable
When credit is extended, some amount of uncollectible

receivables is generally inevitable.
If uncollectible receivables are probable and can be
estimated, an estimate should be made of the amount
uncollectible and recorded in the period in which the
revenue was produced (allowance method).
method
home
back
next
Uncollectible Accounts Receivable
If uncollectible receivables are not probable or cannot

be estimated, no adjustment to current revenue is
required.
Under this set of assumptions, we would write off an
account if it proved to be uncollectible (direct write-off
method).
method
home
back
next
Allowance Method
When we estimate the amount of our uncollectible

receivables, we make the following adjusting entry:
Bad Debt Expense (Debit)
Allowance for Doubtful Accounts (Credit)
The Allowance for Doubtful Accounts is a contra account

to Accounts Receivables.
home
back
next
Allowance Method
As accounts become uncollectible, the following entry is

made:
Allowance for Doubtful Accounts (Debit)
Accounts Receivable (Credit)
The balance in the Allowance account reduces

Accounts Receivable on the Balance Sheet.
home
back
next
ALLOWANCE METHOD
If an account previously written off in a

subsequent period proves to be collectible in the
current period, the following entries are made:
Accounts Receivable (Debit)
Allowance for Doubtful Accounts (Credit)
Cash (Debit)
Accounts Receivable (Credit)
home
back
next
ESTIMATING BAD DEBTS
Credit Sales Method
Accounts Receivable Method
Past Due
home
back
next
Estimating Bad Debts
Credit Sales Method
Method emphasizes the matching principle

and is considered an income statement
approach
An average percentage relationship between
actual bad debt losses and net credit sales is
determined based on historical information.
The percentage is applied to current period
net credit sales to determine bad debts
expense.
expense
home
back
next
Credit Sales Method Example

Based on base data, Renco, Inc. has determined
that bad debt losses average 1.25% of net credit
sales. During 19X6, Renco reported $2,000,000
of sales, of which $250,000 were cash sales.
Prepare the adjusting journal entry to record bad
debts expense in 19X6.
home
back
next
Credit Sales Method Solution
Renco, Inc.
Estimate of Bad Debts
Sales for 19X6
$ 2,000,000
Cash sales during the period
250,000
Net credit sales
1,750,000
Bad debt percentage
1.25%
Bad debts expense
$
21,875
home
back
next
Credit Sales Method Solution
GENERAL JOURNAL
Date
Description
12/31 Bad Debts Expense

Allowance for Doubtful Accounts
Page 11
PR
Debit
Credit
21,875
21,875
home
back
next
CREDIT SALES METHOD
SOLUTION
GENERAL JOURNAL
Date
Page 11
Description
PR

Debit
Credit
21,875
21,875
Contra account that will

reduce Accounts Receivable
on the Balance Sheet
home
back
next
ACCOUNTS RECEIVABLE METHOD
Uses the historical relationship between

accounts receivable and bad debt losses
The historical rate, or multiple rates, is applied
to the net accounts receivable to determine
the balance in the Allowance for Doubtful
Accounts.
Accounts
Bad Debt Expense is the amount of
adjustment necessary to being the Allowance
account to its desired ending balance.
home
back
next

EXAMPLE
Single Composite Rate

Crecore, Inc. determined that the balance in the
Allowance for Doubtful Accounts should be 2.5%
of Accounts Receivable. At year-end Accounts
Receivable had a balance of $191,000, and the
balance in the allowance account was $1,250.
Prepare the adjusting entry to record Bad Debt
Expense.
home
back
next

SOLUTION
Crecore, Inc.
Estimate of Bad Debt Expense
Accounts receivable at year-end
Bad debt composite rate
Balance in Allowance account
Current Allowance balance
Bad debt expense
$ 191,000
2.50%
4,775
1,250
$ 3,525
home
back
next

SOLUTION
GENERAL JOURNAL
Date
Description
Page 17
PR
Debit
3,525
Credit
3,525
home
back
next

SOLUTION
GENERAL JOURNAL
Date
Page 17
Description
PR

172
ACCOUNT NAME: Allow for Doubtful Accounts

Description
12/31
Balance
12/31
Adjusting entry
Credit
3,525
Date
Debit
3,525
ACCOUNT No.
PR
GJ17
Debit
Credit
172
Balance
1,250
1,250
3,525
4,775
After posting the adjusting entry to the

ledger, the Allowance balance is $4,775
home
back
next
AGING OF ACCOUNTS RECEIVABLE
Instead of using a single composite rate,

we can develop different rates depending
upon the length of time the account is
past due.
The more days past due, the higher the

rate of uncollectible receivable
home
back
next
AGING OF RECEIVABLES
EXAMPLE
Wells, Inc. reports accounts receivable of $233,000
at December 31, 19X7. Wells uses aging of
receivables to estimate bad debts. The company
has developed historical loss percentages for
accounts currently due, those 30, 60 and over
60-days past due. The schedule on the following
page shows the aging schedule. The balance in
the allowance account at December 31 is $327.
home
back
next
SOLUTION
Receivable
Loss
Allowance
Age Category
Amount Percentage Balance
Current
$ 200,000
0.50% $ 1,000.00
1-30 days past due
25,000
0.75%
187.50
31-60 days past due
5,000
1.00%
50.00
Over 60 days past due
3,000
10.00%
300.00
Total Accounts Receivable $ 233,000
$ 1,537.50
home
back
next
SOLUTION
Desired balance in allowance

Current allowance balance
Amount of adjustment
$ 1,537.50
327.00
$ 1,210.50
home
back
next
SOLUTION
Desired balance in allowance

Current allowance balance
Amount of adjustment
$ 1,537.50
327.00
$ 1,210.50
GENERAL JOURNAL
Date
Description
12/31 Bad Debt Expense

Page 7
PR
Debit
Credit
1,210.50
1,210.50
home
back
next
Disclosure of Accounts Receivable
The CICA Handbook recommends, in Section 3020, that

accounts receivable be segregated between (1) ordinary
trade accounts, (2) amounts owing by related parties
and (3) other unusual items of substantial amount.
Furthermore, amounts and maturity dates of installment
receivables should be disclosed. Accounts receivable
are financial instruments, and information on terms and
conditions, credit risk and fair values should be
disclosed. In some cases, concentration of credit risk in
certain geographic location or with certain customers
might be appropriate
home
back
next
EXHIBIT 8-3
Information for Bad Debt Estimation
January 1, 20x2, balances:

Accounts receivable (debit)
$101,300
Allowance for doubtful accounts (credit)
3,300
Transactions during 20x2:
Credit sales
500,000
Cash sales
700,000
Collections on accounts receivable
420,000
Accounts written off as uncollectible during 20x2
3,800
After posting of sales,

collections, and writeoffs,
accounts receivable and the
allowance for doubtful accounts
appear as follows:
Accounts Receivable
Jan. 1/20x2 balance
101,300 Collections
Credit sales
500,000 Write-offs
Dec. 31/20x2 balance 177,500
420,000
3,800

Write-offs
3,800 Jan. 1/20x2 balance 3,300
Dec. 31/20x2 balance
before adjustment
500
home
back
next
EXHIBIT 8-4 Accounts Receivable Aging Schedule

December 31 20x2
Customer
Balance
Age of account balance
account
31 Dec. 20x2 Current
1-30 days 31-60 days Over 60 days
Denk
$500
$400
$100
Evans
900
900
Field
1,650
1,350
$300
Harris
90
30
$60
King
800
700
60
40
/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\
Zabot
250
250
Total
$177,500
$110,000
$31,000
$29,500
$7,000
Percent
Bad
debt expense [$5,690 + $500]
6,190
estimated
Allowance for doubtful
accounts8.00%
6,190
uncollectible
0.20%
1.00%
40.00%
Amount
estimated
$5,650
uncollectible
$220
$310
$2,360
$2,800
home
back
next
Speeding Up Cash Flow From Receivables
Credit Card Operations

Loans Secured By Accounts Receivable
Sale Of Accounts Receivable
home
back
next
Credit Card Operations
At one point in time, many retail stores offered credit to

customers in fact, some built a business primarily on
offering credit.
Now, most retailers prefer to get their money up front, and
let the customers owe the credit card company.
Retailers are charged a fee, a percentage of the total sale,
for the privilege, but prefer this charge because they avoid
bad debts, there is no delay in receiving cash, and they
hope that customers will spend more when they can
charge their purchases.
Retail customers expect to be able to use credit cards.
home
back
next
Loans Secured By Accounts Receivable
If a company has a $100,000 account receivable from a

credit-worthy customer who will not pay for 45 days,
how can the company get cash sooner?
The most common course of action is to go to a
chartered bank and borrow money using the account
receivable as collateral.
This isnt very complicated on the books: a loan is
recorded, and interest expense will be recorded as time
passes. When the account is collected, the bank is
repaid. Assets pledged as collateral are disclosed in the
financial statements.
home
back
next
Sale Of Accounts Receivable
Receivables can be sold either without recourse or with

recourse. Recourse simply means the right of the third party to
come back to the seller of the receivables for payment if the
account turns out to be uncollectible.
Sales of accounts receivable are also called assignment or
factoring.
Without Recourse. Agreements to sell receivables are made
on either a notification basis (customers are directed to remit
to the new party holding the receivables, usually called the
factor) or a non-notification basis (customers continue to
remit to the original seller who then, in turn, remits to the
factor).
home
back
next
EXHIBIT 8-5
Sale of Receivables MacMillan Bloedel Limited
3.
Sale of receivables:
In 1996, MacMillan Bloedel entered into
agreements to sell designated pools of trade
receivables to two trusts. At December 31, 1997,
the two trusts held $226 million (1996 $219
million) of such receivables. The agreements
expire in July 1999.
home
back
next
Notes Receivable And Payable
A note receivable is a written promise to pay a specified

amount at a specified future date (or a series of
amounts over a series of payment dates).
Notes receivable are a current asset if the term is a
year or an operating cycle, if longer; notes payable are
a current liability and are the mirror image of
receivables.
Notes payable are also called short-term commercial
paper, issued by large companies with excellent credit
ratings, and bought by other companies as temporary
investments.
home
back
next
Current Liabilities
Common monetary current liabilities are:

Accounts payable
Short-term notes payable
Cash and property dividends payable
Advances and returnable deposits
Monetary accrued liabilities
Estimated monetary liabilities, including:
* Taxes (sales, property, and payroll)

* Conditional payments (income taxes and bonuses)
* Compensated-absence liabilities
Current loans payable

Current portion of long-term liabilities
home
back
next
To record remittance of payroll deductions (composite entry):
Employee income taxes payable20,000

8
EXHIBIT
CPP
payable8-6
4,500
of Payroll Deductions5,040
EIIllustration
payable
Union dues
payable
To record
payroll expenses payable 1,400
by the employer:
Charitable
contributions
payable
1,600
Salary
expense
5,190
Thor Company reported the following information relating to
32,540
CPP payable
2,250
payroll Cash
for January 20x5:
EI payable ($2,100 X 1.4)

Gross
wages
$100,000 2,940
To record
salaries
and employee deductions
Salary expense
100,000
Deductions:
Employee
income
taxes payable $20,000
20,000
Income
taxes
CPP payable
2,250
Canada Pension Plan
2,250
EI payable
2,100
Employment insurance
2,100
Union dues
payable
1,400
Union
dues
1,400
Charitable
contributions
payable
1,600 27,350
Charitable
contributions
1,600
Cash
72,650 $72,650
Net pay
home
back
next
Foreign Currency Receivables And

Payables
If a company has accounts or notes receivable or payable, they must
be restated to the current exchange rate at the balance sheet date.
Monetary items that are denominated in a foreign currency always
arise from some transaction. The transaction may be:
sales to a foreign customer,
purchases from a foreign supplier,
investments in foreign currency financial instruments,
or foreign currency loans from a foreign bank (or from a Canadian
bank but in a foreign currency).
When the transaction occurs, it is recorded at the exchange rate in
effect at the date of the transaction
home
back
next
Summary Of Key Points
Cash includes only those items immediately available to

pay obligations.
The bank reconciliation is an internal control
mechanism. The reconciliation of book balance to
correct cash balance provides the data for end-ofmonth adjusting entries for cash.
Doubtful accounts, cash discounts, and sales returns
and allowances represent adjustments to the recorded
value of sales and receivables, necessary to provide an
estimate of net realizable value.
home
back
next

Accounts receivable can be used as collateral for a loan to
speed up the cash cycle. Alternatively, accounts receivable can
be sold to a factor to obtain immediate cash. The key accounting
issue is whether the transfer of accounts receivable is treated as
a sale or loan. When the risks and rewards are transferred and
the transferor's obligation can be estimated, the transfer is
handled as a sale. Otherwise, it is treated as a loan.
Long-term notes are recorded at the present value of all cash
payments to be received using the appropriate market rate of
interest. Interest is based on that market interest rate and the
outstanding principal balance at the beginning of the period.
Impaired notes are reduced to present value.
home
back
next

Current liabilities are obligations whose liquidation is reasonably
expected to require the use of existing resources properly
classified as current assets, or the creation of other current
liabilities.
Current liabilities commonly include accounts, notes, accruals,
property taxes, cash dividends, taxes, bonuses, and other
payables.
Debt is a current liability if it is due on demand, if it is the current
portion of long-term debt, or if it is long-term debt in default.
Current debt that is to be refinanced as long-term may be
reclassified as long-term only if certain specific conditions are
met.
home
back
next

Transactions that are denominated in a foreign currency are
recorded at the exchange rate that exists at the transaction
date. Current monetary balances (i.e., receivables and
payables) are restated to the exchange rate that exists on the
balance sheet date. Gains and losses on long-term monetary
balances are deferred and amortized over the remaining period
to maturity.
home
back
next

CH 8

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CH 8

Uploaded by

Copyright:

Available Formats

Intermediate Accounting

PowerPoint slides by:

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Current Monetary Balances

PowerPoint slides by:

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

One objective of financial reporting is to help users

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Definition Of Monetary Items

The CICA Handbook defines monetary items as

Monetary financial assets and financial liabilities (also

There are two key aspects of this definition:

the asset or obligation must be settled by means of cash,

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Definition Of Monetary Items

Cash and cash equivalents;.

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Internal Controls For Cash

The risk of theft is directly related to the ability of

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Internal Control And Bank Accounts

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Policies and procedures

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Separate custody of and accounting for cash

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Separate responsibility for handling cash, recording

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Internal Controls For Cash

Separate responsibilities for cash disbursement

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Reconciliation Of Bank And Book Cash

Compare all deposits made in the bank account with

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Company's Cash Account

* Per cash receipts journal

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Bank Reconciliation - Entries

Accounts Receivable, J Fox

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Accounting For Receivables

Receivables represent claims for money, goods, services, and other

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Recognition And Measurement Of Accounts

Recognized when there has been an agreement with a customer

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Cash Discounts are used to . . .

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Sales Returns And Allowances

Sales returns occur when merchandise is returned by the

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Uncollectible Accounts Receivable

When credit is extended, some amount of uncollectible

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

Uncollectible Accounts Receivable

If uncollectible receivables are not probable or cannot

Copyright 1998 McGraw-Hill Ryerson Limited, Canada

When we estimate the amount of our uncollectible

The Allowance for Doubtful Accounts is a contra account

Copyright 1998 McGraw-Hill Ryerson Limited, Canada