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Fundamental Financial Accounting Key Terms and Concepts Chapter 5 - Accounting For and Presentation of Current Assets

administrative controls Allowance for Uncollectible Accounts (or Allowance for Bad Debts) bad debts expense (or uncollectible accounts expense) bank reconciliation bank service charge carrying value

Features of the internal control system that emphasize adherence to management's policies and operating efficiency. The valuation allowance that results in accounts receivable being reduced by the amount not expected to be collected.

An estimated expense, recognized in the fiscal period of the sale, representing accounts receivable that are not expected to be collected. The process of bringing into agreement the balance in the Cash account in the entity's ledger and the balance reported by the bank on the bank statement. The fee charged by a bank for maintaining the entity's checking account. The balance of the ledger account (including related contra accounts, if any) of an asset, liability, or owner's equity account. Sometimes referred to as book value . A company's most liquid asset; includes money in change funds, petty cash, undeposited receipts such as currency, checks, bank drafts, and money orders, and funds immediately available in bank accounts. A discount offered for prompt payment. Short-term, highly liquid investments that can be readily converted into cash with a minimal risk of price change due to interest rate movements; examples include U.S. Treasury securities, bank CDs, money market funds, and commercial paper.

cash cash discount cash equivalents

Assets of a borrower that can be used to satisfy the obligation if payment is not made when due. A requirement that an item be paid for when it is delivered. Sometimes COD is collect on deliver defined as "cash" on delivery . (COD) A short-term security usually issued by a large, creditworthy corporation. commercial paper An account that normally has a credit balance that is subtracted from a related asset contra asset on the balance sheet. An assumption made for accounting purposes that identifies how costs flow from the Inventory account to the Cost of Goods Sold account. Alternatives include cost-flow assumption specific identification; weighted average; first-in, first-out (FIFO); and last-in, firstout (LIFO) (although LIFO is not acceptable under IFRS it is used under GAAP in the USA). A seller's policy with respect to when payment of an invoice is due and what cash credit terms discount (if any) is allowed. An expenditure made in one fiscal period that will be recognized as an expense in a deferred charge future fiscal period. Another term for a prepaid expense . An asset that arises because of temporary differences between when an item is deferred tax asset recognized for book and tax purposes. collateral

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deferred tax liability deposit in transit financial controls finished goods inventory first-in, first-out (FIFO) imprest account A liability that arises because of temporary differences between when an item is recognized for book and tax purposes. A bank deposit that has been recorded in the entity's cash account but that does not appear on the bank statement because the bank received the deposit after the date of the statement. Features of the internal control system that emphasize accuracy of bookkeeping and financial statements and protection of assets. The term used primarily by manufacturing firms to describe inventory ready for sale to customers. The inventory cost-flow assumption that first costs in to inventory are the first costs out to cost of goods sold. An asset account that has a constant balance in the ledger; cash on hand and vouchers (as receipts for payments) add up to the account balance. Used especially for petty cash funds. Policies and procedures designed to provide reasonable assurance that objectives are achieved with respect to: 1) The effectiveness and efficiency of the operations of the organization; 2) The reliability of the organization's financial reporting; 3) The organization's compliance with applicable laws and regulations.

internal control system

The method used to account for the movement of items in to inventory and out to inventory accounting cost of goods sold. The alternatives are the periodic system and the perpetual system system. The inventory cost-flow assumption that the last costs in to inventory are the first costs out to cost of goods sold. This is very often used by companies that report last-in, first-out under GAAP accounting standards (e.g. in the USA) but it is not permitted by IFRS (LIFO) standards. A valuation process that may result in an asset being reported at an amount less lower of cost or than cost. market The term used primarily by retail firms to describe inventory ready for sale to merchandise customers. inventory The amount of funds expected to be received upon sale or liquidation of an asset. net realizable value For accounts receivable, the amount expected to be collected from customers after allowing for bad debts and estimated cash discounts. A formal document (usually interest bearing) that supports the financial claim of note receivable one entity against another. A check returned by the maker's bank because there were not enough funds in the NSF (not sufficient account to cover the check. funds) check The average time it takes a firm to convert an amount invested in inventory back to cash. For most firms, the operating cycle is measured as the average number of operating cycle days to produce and sell inventory plus the average number of days to collect accounts receivable. A check that has been recorded as a cash disbursement by the entity but that has not outstanding check yet been processed by the bank. A system of accounting for the movement of items in to inventory and out to cost of periodic inventory goods sold that involves periodically making a physical count of the inventory on system hand. A system of accounting for the movement of items in to inventory and out to cost of perpetual inventory goods sold that involves keeping a continuous record of items received, items sold, system inventory on hand, and cost of goods sold. A fund used for small payments for which writing a check is inconvenient. petty cash

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physical inventory The process of counting the inventory on hand and determining its cost based on the inventory cost-flow assumption being used. Expenses that have been paid in the current fiscal period but that will not be subtracted from revenues until a sub sequent fiscal period when the benefits are received. Usually a current asset. Another term for deferred charge . Inventory of materials ready for the production process.

prepaid expenses raw materials inventory

short-term Investments made with cash not needed for current operations. marketable securities specific identification The inventory cost-flow assumption that matches cost flow with physical flow. uncollectible accounts expense valuation account See bad debts expense .

A contra account that reduces the carrying value of an asset to a net realizable value that is less than cost. An adjustment that results in an asset being reported at a net realizable value that is valuation adjustment less than cost. The inventory cost-flow assumption that is based on an average of the cost of beginning inventory plus the cost of purchases during the year, weighted by the weighted average quantity of times at each cost. work in process inventory Inventory account for the costs (raw materials, direct labor, and manufacturing overhead) of items that are in the process of being manufactured. The process of removing a specific account receivable that is not expected to be collected form the Accounts Receivable account. Also used generically to describe the reduction of an asset and the related recognition of an expense.

write-off