Intermediate accounting 13th kieso warfield chapter 07

Chapter
7-1


CHAPTER

7

CASH AND RECEIVABLES

Intermediate Accounting
13th Edition
Kieso, Weygandt, and Warfield
Chapter
7-2


Learning
Learning Objectives
Objectives
1.

Identify items considered cash.

2.

Indicate how to report cash and related items.

3.

Define receivables and identify the different types of receivables.

4.

Explain accounting issues related to recognition of accounts
receivable.

5.

Explain accounting issues related to valuation of accounts
receivable.

6.

Explain accounting issues related to recognition of notes receivable.

7.

Explain accounting issues related to valuation of notes receivable.

8.

Explain accounting issues related to disposition of accounts and
notes receivable.

9.

Describe how to report and analyze receivables.

Chapter
7-3

Cash
Cash and
and Receivables
Receivables

Cash
What is cash?
Reporting cash
Summary of cashrelated items

Chapter
7-4

Receivables
Recognition of accounts
receivable
Valuation of accounts
receivable
Recognition of notes
receivable
Valuation of notes
receivable
Disposition of accounts
and notes receivable
Presentation and
analysis

What
What is
is Cash?
Cash?
Cash
Most liquid asset
Standard medium of exchange
Basis for measuring and accounting for all items
Current asset
Examples: coin, currency, available funds on deposit
at the bank, money orders, certified checks,
cashier’s checks, personal checks, bank drafts and
savings accounts.
Chapter
7-5

LO 1 Identify items considered cash.


Reporting
Reporting Cash
Cash
Cash Equivalents
Short-term, highly liquid investments that are both
(a) readily convertible to cash, and
(b) so near their maturity that they present
insignificant risk of changes in interest rates.
Examples: Treasury bills, Commercial paper, and Money
market funds.

Chapter
7-6

LO 2 Indicate how to report cash and related items.


Reporting
Reporting Cash
Cash
Restricted Cash
Companies segregate restricted cash from “regular”
cash for reporting purposes.
Examples, restricted for:
(1) plant expansion, (2) retirement of long-term debt,
and (3) compensating balances.
Illustration 7-1

Chapter
7-7

LO 2 Indicate how to report cash and related items.


Reporting
Reporting Cash
Cash
Bank Overdrafts
When a company writes a check for more than the
amount in its cash account.
Generally reported as a current liability.

Offset against cash account only when available cash
is present in another account in the same bank on
which the overdraft occurred.

Chapter
7-8

LO 2 Indicate how to report cash and related items.


Summary
Summary of
of Cash-Related
Cash-Related Items
Items
Illustration 7-2

Chapter
7-9

LO 2 Indicate how to report cash and related items.


Receivables
Receivables
Claims held against customers and others
money, goods, or services.

for

Oral promises of the
purchaser to pay for
goods and services sold.

Written promises to pay
a sum of money on a
specified future date.

Accounts
Accounts
Receivable
Receivable

Notes
Notes
Receivable
Receivable

Chapter
7-10

LO 3 Define receivables and identify the different types of receivables.


Receivables
Receivables
Nontrade Receivables
1.
2.
3.

4.
5.
6.

Advances to officers and employees.
Advances to subsidiaries.
Deposits to cover potential damages or losses.
Deposits as a guarantee of performance or payment.
Dividends and interest receivable.
Claims against:
a)
b)
c)
d)
e)
f)

Chapter
7-11

Insurance companies for casualties sustained.
Defendants under suit.
Governmental bodies for tax refunds.
Common carriers for damaged or lost goods.
Creditors for returned, damaged, or lost goods.
Customers for returnable items (crates, containers, etc.).

LO 3 Define receivables and identify the different types of receivables.

Receivables
Receivables
Nontrade Receivables
Illustration 7-3

Chapter
7-12

LO 3 Define receivables and identify the different types of receivables.


Recognition
Recognition of
of Accounts
Accounts Receivables
Receivables
Trade
Trade Discounts
Discounts
Reductions
Reductions from
from the
the list
list
price
price
Not
Not recognized
recognized in
in the

the
accounting
accounting records
records
Customers
Customers are
are billed
billed net
net
of
of discounts
discounts

Chapter
7-13

10 %
Discount
for new
Retail
Store
Customers

LO 4 Explain accounting issues related to recognition of accounts receivable.


Recognition
Recognition of
of Accounts
Accounts Receivables

Receivables
Cash
Cash Discounts
Discounts
Inducements
Inducements for
for prompt
prompt
payment
payment
Gross
Gross Method
Method vs.
vs.
Net
Net Method
Method

Chapter
7-14

Payment
terms are
2/10, n/30

LO 4 Explain accounting issues related to recognition of accounts receivable.


Recognition
Recognition of

of Accounts
Accounts Receivables
Receivables
Cash Discounts (Sales Discounts)

Chapter
7-15

Illustration 7-4

LO 4 Explain accounting issues related to recognition of accounts receivable.


Recognition
Recognition of
of Accounts
Accounts Receivables
Receivables
E7-5: On June 3, Bolton Company sold to Arquette Company
merchandise having a sale price of $2,000 with terms of 2/10,
n/60, f.o.b. shipping point. On June 12, the company received a
check for the balance due from Arquette Company. Prepare the
journal entries on Bolton Company books to record the sale
assuming Bolton records sales using the gross method.
June 3

Accounts receivable

2,000

Sales
June 12

Cash ($2,000 x 98%)
Sales discounts
Accounts receivable

Chapter
7-16

2,000
1,960
40
2,000

LO 4 Explain accounting issues related to recognition of accounts receivable.


Recognition
Recognition of
of Accounts
Accounts Receivables
Receivables
E7-5: On June 3, Bolton Company sold to Arquette Company
merchandise having a sale price of $2,000 with terms of 2/10,
n/60, f.o.b. shipping point. On June 12, the company received a
check for the balance due from Arquette Company. Prepare the
journal entries on Bolton Company books to record the sale
assuming Bolton records sales using the net method.
June 3

Accounts receivable

1,960

Sales
June 12

Cash ($2,000 x 98%)
Accounts receivable

Chapter
7-17

1,960
1,960
1,960

LO 4 Explain accounting issues related to recognition of accounts receivable.


Recognition
Recognition of
of Accounts
Accounts Receivables
Receivables
E7-5: On June 3, Bolton Company sold to Arquette Company
merchandise having a sale price of $2,000 with terms of 2/10,
n/60, f.o.b. shipping point. Prepare the journal entries on Bolton
Company books to record the sale assuming Bolton records sales

using the net method, and Arquette did not remit payment until
July 29.
June 3

Accounts receivable

1,960

Sales
June 12

Cash
Accounts receivable
Sales Discounts Forfeited

Chapter
7-18

1,960
2,000
1,960
40

LO 4 Explain accounting issues related to recognition of accounts receivable.


Recognition
Recognition of
of Accounts
Accounts Receivables

Receivables
Nonrecognition of Interest Element
A company should measure receivables in terms of
their present value.
The profession specifically excludes from present
value considerations “receivables arising from
transactions with customers in the normal course
of business which are due in customary trade terms
not exceeding approximately one year.”

Chapter
7-19

LO 4 Explain accounting issues related to recognition of accounts receivable.


Accounting
Accounting for
for Accounts
Accounts Receivable
Receivable
How
How are
are these
these accounts
accounts presented
presented on
on the
the Balance
Balance

Sheet?
Sheet?

Accounts Receivable

Allowance for
Doubtful Accounts

Beg.

500

25

Beg.

End.

500

25

End.

Chapter
7-20

LO 4 Explain accounting issues related to recognition of accounts receivable.

Accounting
Accounting for
for Accounts
Accounts Receivable
Receivable

Chapter
7-21

LO 4 Explain accounting issues related to recognition of accounts receivable.


Accounting
Accounting for
for Accounts
Accounts Receivable
Receivable

Chapter
7-22

LO 4 Explain accounting issues related to recognition of accounts receivable.


Accounting
Accounting for
for Accounts
Accounts Receivable
Receivable
Journal

Journal entry
entry for
for credit
credit sale
sale of
of $100?
$100?
Accounts
100
Accounts receivable
receivable
100
Sales
Sales
Accounts Receivable

100
100

Allowance for
Doubtful Accounts

Beg.

500

25

Beg.

End.

500

25

End.

Chapter
7-23

LO 4 Explain accounting issues related to recognition of accounts receivable.


Accounting
Accounting for
for Accounts
Accounts Receivable
Receivable
Journal
Journal entry
entry for
for credit
credit sale
sale of
of $100?
$100?
Accounts
100
Accounts receivable

receivable
100
Sales
Sales
Accounts Receivable
Beg.

500

Sale

100

End.

600

Chapter
7-24

100
100

Allowance for
Doubtful Accounts
25

Beg.

25

End.

LO 4 Explain accounting issues related to recognition of accounts receivable.


Accounting
Accounting for
for Accounts
Accounts Receivable
Receivable
Collected
Collected of
of $333
$333 on
on account?
account?
Cash
Cash
Accounts
Accounts receivable
receivable
Accounts Receivable
Beg.

500

Sale

100

End.

600

Chapter
7-25

333
333

333
333

Allowance for
Doubtful Accounts
25

Beg.

25

End.

LO 4 Explain accounting issues related to recognition of accounts receivable.