Week 2 Chapter 2 Cash

- Petty cash – real notes in small amounts for very small transactions ~400$
o Requires that transactions are recorded
- Cash in foreign currency
- Bank accounts balances with reconciliation
- Cash equivalents = available to pay obligations without restrictions

Cash over and short

- E.g. if given an advance to an employee of 16$ and they repay with 20$ because they don’t have
change (debit if missing $; credit if gained $ like in example)

Restricted cash

- Compensating balances required by banks (collateral)

o The bank holds an amount of money that you can’t use in return for their services as
collateral
o Still your money, but the bank holds it in case you can’t pay and they can use your
money for loans and other bank services
- Cash set aside for long-term payments or investment

Bank overdraft

- Negative cheque account balances

Cash in foreign currencies

- Affected by global rates in different countries

- Included in restricted cash because you can’t use it in your own country

Bank reconciliation – Cash balance in company’s books vs cash balance in bank (Petty cash included)

- Ensure bank and company reports the accurate amount

- They are unmatched due to time lagging in recording
- We only record our side of the journal entries (because its our company’s books)
- Following items
o Deposits in transits – deposited by the company, but the bank has not updated yet (late
deposit); recorded by company, unrecorded by bank
o Petty cash – hard cash on hand, not in the bank; recorded by company, unrecorded by
bank
o Outstanding cheques – cheques written by company to pay other parties, but the bank
has not updated yet because the payee has not cashed in the cheque; recorded by
company; unrecorded by bank
o Amounts collected by the bank on the company’s behalf – unrecorded by company;
recorded by bank
o NSF cheques – payer gives the company a cheque, but it was not enough; recorded full
amount by company; recorded properly by bank – subtract from company
 o Bank service charge – bank charges; unrecorded by company, recorded by bank
o Errors by each side - +/- for wrong amounts recorded by either side

Balance per BANK STATEMENT Balance per COMPANY STATEMENT

+ deposits in transit + amounts collected by the bank for us
- outstanding cheques - NSF cheques
+ petty cash - bank service charge
+/- errors +/- errors
Adjusted balance Adjusted errors

Cash equivalents

- Short-term 3 months or under when acquired (not how much time left), highly liquid
investments
o commercial paper (short-term note receivable from other companies)
o treasury bills (governments debt obligation)
o money-market funds
- Equity investments are excluded
- IFRS exception – preferred shares acquired close to maturity date

Week 2 Chapter 3 Accounts Receivable A/R

Differences between accounts receivable and notes receivable

Notes receivable

- Results from credit sale

- Formal contract written and signed by both parties

Accounts receivable Notes receivable

- Results from a credit sale
- Recognize amounts when the customer
received service/product
- Current asset <30 days
- No interest
- Presented at net realizable value
- Results from a credit sale
- Formal contract written by both parties
- Usually noncurrent, but can also be
current depending on maturity date
- Usually charges interest to customer
because it is longer and terms are required
in the notes
- Presented at their net realizable value; the
amount that you can expect the customer
to pay if the customer started facing
hardships and can’t pay the full amount

1. To record credit sale

a. Dr a/r; cr rev
2. When accounts are actually written off
a. Dr afda; cr a/r
3. If previously written off accounts gets recovered
 a. Dr a/r; cr afda
b. Dr cash; cr a/r
4. To record estimated bad debt expense
a. Dr bad debt expense; cr afda
5. AFDA is also called allowance for expected credit loses

T – Accounts

Accounts receivable

Beginning Cash collected

Credit sales Write-offs
Recoveries Recoveries
AFDA

Write-offs Beginning
Recoveries
Bad debt expense
Ending balances of A/R - AFDA = Net realizable value

Estimating bad debt

- Income statement approach – 1 step

o % of A/R x net credit sales of the year = bad debt expense of the year
- Balance sheet approach – 2 step
o % of A/R x A/R ending bal = desired AFDA ending bal
o Analyze AFDA account to determine bad debt expense of the year NEEDED to get
desired AFDA ending bal