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Cash and Receivables


We begin our study of assets by looking at cash and receivables—the two assets typically listed first in a balance sheet. Internal control and classification in the balance sheet are key issues we address in consideration of cash. For receivables, the key issues are valuation and the related income statement effects of transactions involving accounts receivable and notes receivable.



Define what is meant by internal control and describe some key elements of an internal control system for cash receipts and disbursements.

Explain the possible restrictions on cash and their implications for classification in the balance sheet.

Distinguish between the gross and net methods of accounting for cash discounts.

Describe the accounting treatment for merchandise returns.

Describe the accounting treatment of anticipated uncollectible accounts receivable.

Describe the two approaches to estimating bad debts.

Describe the accounting treatment of short-term notes receivable.

Differentiate between the use of receivables in financing arrangements accounted for as a secured borrowing and those accounted for as a sale.

Describe the variables that influence a company's investment in receivables and calculate the key ratios used by analysts to monitor that investment.





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