Accounting Module 4● Financial Assets: ○ Includes cash, short term investments, and receivables○ In the balance sheet, they are shown at their current value (the amount of cash they represent)■ Cash: Shown at face value in balance sheet■ Short term investments: Appear in the balance sheet at their current fair market value■ Accounts receivable: Appear in the balance sheet at the estimated collectible amount (net realizable value).● Appears in the balance sheet immediately after cash and short term investments● Relatively liquid asset, that is converted into cash within a period of 30 to 60 days.● Marketable securities: Short term investments● Cash:○ Money on deposit in banks, paper money, checks, money orders, and traveler’s checks, sales usingbank cards.● Reporting Cash in the Balance Sheet○ Cash is listed first in the balance sheet because it is the most liquid. It is combined with the controlaccount for cash equivalents○ Cash Equivalents:■ Very short-term investments that are so liquid that they are considered equivalent to cash.■ Examples include money market funds, U.S. Treasury bills, certificates of deposit, and commercial paper. ● Cash Management: ○ Refers to planning, controlling, and accounting for cash transactions and cash balances○ Objectives:■ Provide accurate accounting for cash receipts, cash disbursements, and cash balances.■ Prevent or minimize losses from theft or fraud.■ Anticipate the need for borrowing and assure the availability of adequate amounts of cashfor conducting business operations.■ Prevent unnecessarily large amounts of cash from sitting idle in bank accounts that produce no revenue.● Reflecting Uncollectible Accounts in the Financial Statements○ An account receivable that has been determined to be uncollectible is no longer an asset. The loss of this asset represents an expense, termed Uncollectible Accounts Expense ● Writing off an uncollectible Accounts Receivable○ Credit Account Receivable and debit to Allowance for Doubtful Accounts○ If the amounts written off as uncollectible turn out to be less than the estimated amount, the Allowance for Doubtful Accounts will continue to show a credit balance. ○ If the amounts written off as uncollectible are greater than the estimated amount, the Allowance for Doubtful Accounts will acquire a temporary debit balance, which will be eliminated by the adjustment at the end of the period● Allowance for Doubtful Accounts○ A valuation account or contra-asset account relating to accounts receivable and showing the portion of the receivables estimated to be uncollectible.○ Is credited with the amount of accounts receivable that is estimated to be uncollectible● Aging the Accounts Receivable Method○ The process of classifying accounts receivable by age groups○ Most common method for estimating the probable amount of uncollectible accounts○ Finding the Adjusting entry amount■ Multiply Age group total amount with percentages of each age group to find credit balance after adjustment. ■ Credit balance after - credit balance before = credit adjustment required● Maker: ○ The party that issues a note (i.e., signs the note) is referred to as this● Accounts Receivable Turnover Rate○ Tells us how many times the company’s average investment in receivables was converted into cash during the year○ Computed by:■ Net sales / Average accounts receivable.○ Average # of days account receivable remain outstanding before they are collected:■ 365 / Turnover rate● Interest:○ Charge for the use of money● Major steps in achieving internal control over cash transactions and cash balances:○ Separate the function of handling cash from the maintenance of accounting records. Employees who handle cash should not have access to the accounting records, and accounting personnel with access to cash records should not handle cash.○ Prepare cash budgets (or forecasts) of planned cash receipts, cash payments, and cash balances, scheduled month-by-month for the coming year.○ Prepare a control listing of cash receipts at the time and place the money is received.○ Require that all cash receipts be deposited daily in the bank.○ Make all payments by check. The only exception should be for small payments to be made in cashfrom what is often referred to as a petty cash fund.● Module 4 Questions○ Cash that will not be needed in the immediate future is often invested in highly ? short-term securities.■ Liquid○ Financial assets are shown in the balance sheet at their ? values.■ Current○ Which items are typically included as part of a company's cash balance?■ money orders■ bank deposits■ checks■ travelers' checks○ Which asset is viewed as the most liquid on the balance sheet?■ Cash○ Cash management refers to planning, controlling, and accounting for cash ? and cash ?■ Transactions■ Balances○ A principal source of a company's daily receipts is the■ collection of accounts receivable.○ Cash budgets should be prepared on a■ Monthly basis○ Cash is carried in the balance sheet at■ its face amount.○ Accounts receivable are typically listed in the balance sheet■ immediately after cash and short-term investments in marketable securities.○ True or false: Transactions where a customer uses a bank credit card (e.g., Visa, MasterCard) are considered cash sales.■ True○ Srinivasan, Inc., sells $600,000 worth of goods on account in March and estimates that 2% of these credit sales will ultimately prove to be uncollectible. The cost of the items sold was $400,000. As a result, total assets will (increase/decrease) by ? in March.■ Increase■ 188,000● 600000 x .02 = 1200. 600000 - 1200 = 588,000.● 588,000 - 400,000 = 188,000○ Cash is reported in which location in the balance sheet?■ The first item listed among current assets.○ True or false: The Allowance for Doubtful Accounts has a normal credit balance.■ True○ The objectives of cash management include■ preventing or minimizing losses due to theft or fraud.■ anticipating borrowing needs and ensuring that adequate amounts of cash are available.■ providing accurate accounting for cash receipts, cash disbursements, and cash balances.○ On July 10, Yang, Inc., concludes that a $24,000 receivable due from Jones, Inc., is uncollectible. Yang will credit ? to write off the receivable.■ Accounts Receivable○ Except for very small payments, all