Cash Cash consists of coin, currency, demand deposits and cash equivalents Internal Control of cash Accounts Receivable Accounts Receivable The right to receive payment which results from sales or services rendered to another person or company Sales Discounts Accounts Receivable Accounts Receivable are reported at net realizable value. Balance of Accounts Receivable Less Allowance for Uncollectables Equals Net realizable value Equals Book value of Receivables Gross M G Method h d Net Method Uncollectables Direct write-off method Allowance method – Income I statement t t t Approach A h – Balance sheet approach Notes Receivable Differ from accounts receivable. – Signed, Signed formal document. document – Interest bearing. – May be long- or short-term. Discounts and premiums. Disposition The transfer of the right to receive right to receive payments on receivables to a third party may be treated in one of two ways: – Secured borrowing – Sale Pledging Assigning Pledging refers to borrowing money from a third party and using the receivable as collateral. The receivable remains on the company’s books and a liability is recorded for the cash received plus and interest due. Assigning differs from pledging in that the receivables are held by the finance company. The payments are collected by th finance the fi company. As in pledging, the receivable remains on the company’s books and a liability is recorded. Payments to the finance company reduce the liability for principal and interest. Factoring Factoring occurs when a company sells its receivables to a financial institution The accounting for factoring depends upon whether the sale is with or without recourse w/o Recourse ? Yes No Three Conditions? No Borrowing Yes Sale Factoring In the event the sale is a without recourse sale, the receivable is removed from the books and a gain g or loss is recorded. In the event the sale is a with recourse sale, use the financial components approach.