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.