DOCSLIB.ORG

Cash and Receivables

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Cash and Receivables Learning Objectives No substantial departures from the text, Chapter 7. Cash and Receivables Chapter 7 Slide Slide 7-1 UCSB, Anderson 7-2 UCSB, Anderson Nature and Composition of Cash Additional Cash Issues Cash is classified as a ....... Current Asset Bank Overdrafts (means negative cash) – Happens when outstanding checks exceeds cash at bank plus To be reported as CASH: deposits in transit (or when the Company has overdraft protection) Must be readily available for the payment of – Is this an asset? current obligations, and ....… NO!!- current liability called “bank it must be free from any contractual restriction overdraft” that limits its use in satisfying debts. Restricted Cash- such as cash held as collateral for bank. – Requires disclosure Cash Equivalents • Some companies include investments which are readily converted to cash within 90 days as a “cash equivalent”- requires disclosure. Hence their financial statement presentation for the cash line reads: “cash and cash equivalents”. Slide Slide 7-3 UCSB, Anderson 7-4 UCSB, Anderson Account Classification Account Classification Items Account Items Account a. Coins and currency Cash i. Savings account Cash b. U.S. Treasury bonds Temporary investments j. Petty cash Cash c. Certificate of deposit Temporary investments k. Stamps Postage expense d. NSF check (customer) Accounts receivable l. Travel advances Prepaid e. Postdated checksNOTE: Treasury Receivablebills are 1 year f. Cash to be usedOr less, for but treasuryLong-term bonds always investments bond retirement 1 year or more(bond sinking fund) g. Deposits in transit Cash h. Shares of AOL stock Investments (ST or LT?) Slide Slide 7-5 UCSB, Anderson 7-6 UCSB, Anderson Cash Controls Bank Reconciliation Why are cash controls important? Reconciling Items: Cash is most susceptible asset to theft. unrecorded by bank, but recorded by entity Because ultimately everything culminates in cash, recorded by bank, but not by entity consequently other problems frequently manifest errors by the bank or the entity themselves as unknown “reconciling items” when the bank reconciliation is performed. CRUTCH TOOL What do you think are the two most important cash Reconciling From A to B (A at top of reconciliation): controls to have? Segregation of duties (forces collusion) Recorded by A but NOT B: Opposite direction in reconciliation Check signing authority (have to get the cash out of the bank in order to steal it! Recorded by B but NOT A: Same direction in reconciliation. Slide Slide 7-7 UCSB, Anderson 7-8 UCSB, Anderson BANK RECONCILIATION CRUTCH Bank Reconciliation Example For example: XYZ Company. The following relevant information RECONCILING RECORDED BY exists: FROM BOTH X & Y X BUT NOT Y Y BUT NOT X The bank balance is $250,000 as of December 31, 200X while X No opposite direction same direction your general ledger shows cash at $200,000. Careful adjustment Increase= negative Increase= positive examination of activity reveals the following: Decrease=positive Decrease= negative – There are $20 in bank fees which were not recorded in the general ledger; Y – XYZ received checks and posted the entry for $95,000 during the last week of December which did not get deposited to the bank. – XYZ wrote checks during the last week of December totaling $175,000 which have not yet cleared the bank. –There was a $29,980 un-located reconciling item (general ledger exceeding bank) on every bank statement sense the beginning of the year. Slide Slide 7-9 UCSB, Anderson 7-10 UCSB, Anderson Bank reconciliation to example on previous slide: Claims held against customers and others for money, goods, or services. Receivables Balance per bank 250,000 Bank charges not recorded 20 entry required to Gl Deposit in transit 95,000 Oral promises of the Written promises to pay Outstanding checks (175,000) purchaser to pay for a certain sum of Other misc. 29,980 Possible error! goods and services money on a specified sold. future date. 200,000 Accounts Notes Receivable Receivable “Trade receivables” if from their primary activities. Slide Slide 7-11 UCSB, Anderson 7-12 UCSB, Anderson A/R Measurement A/R Measurement Cash Discounts Trade Discounts Inducements for prompt payment Reductions from the list – 2/10, n/30 means: 2% discount if paid within 10 price days, all of it if you don’t! 10 % Not recognized in the Can account for it using the Discount Gross Method or Net Method accounting records (Illustration 7-4 pg. 321) Payment for new Customers are billed net Gross Method is more practical terms are Retail and common. of discounts 2/10, n/30 Store Customers Slide Slide 7-13 UCSB, Anderson 7-14 UCSB, Anderson Sales Discounts: Gross VS Net Accounts Receivable Valuation Gross Method- MOST COMMON Net Method Valued at Net Realizable Value Sales of $10,000, terms 2/10, n/30 Accounts Receivable 10,000 Accounts Receivable 9,800 Sales 10,000 Sales 9,800 Methods of Accounting for Uncollectible Accounts Payment of $3,920 received WITHIN discount period (10 days) Cash 3,920 Cash 3,920 Accounts receivable 4,000 Accounts receivable 3,920 Allowance Method Sales discounts 80 Direct Write-Off Losses are Estimated: Theoretically undesirable: Payment of $6,000 received AFTER discount period (10 days) Percentage-of-sales Cash 6,000 A/R 120 no matching Accounts receivable 6,000 Sales discounts forfeited 120 Percentage-of-receivables Cash 6,000 receivable not stated at Other means Accounts receivable 6,000 net realizable value ALWAYS have to assess whether the methodology Allowable if immaterial utilized is reasonable (judment comes into play again!) Slide Slide 7-15 UCSB, Anderson 7-16 UCSB, Anderson Accounting for A/R and Bad Debts Assets Current Assets: How are these accounts presented on the Balance Cash $ 346 Sheet? Accounts receivable 500 Less allowance for doubtful accounts 25 475 Inventory 812 Prepaids _ 40 Allowance for Total current assets 1,673 Accounts Receivable Doubtful Accounts Fixed Assets: Beg. 500 25 Beg. Office equipment 5,679 Furniture & fixtures 6,600 Less: Accumulated depreciation (3,735) Total fixed assets 8,544 Total Assets $10,217 End. 500 25 End. Slide Slide 7-17 UCSB, Anderson 7-18 UCSB, Anderson Assets Accounting for A/R and Bad Debts Current Assets: Cash $ 346 Journal entry for credit sale of $100? Accounts receivable, net of $25 allowance Accounts receivable 100 for doubtful accounts 475 Sales 100 Inventory 812 Prepaids _ 40 Allowance for Total current assets 1,673 Accounts Receivable Doubtful Accounts Fixed Assets: Office equipment 5,679 Beg. 500 25 Beg. Furniture & fixtures 6,600 Less: Accumulated depreciation (3,735) Total fixed assets 8,544 Total Assets $10,217 End. 500 25 End. Slide Slide 7-19 UCSB, Anderson 7-20 UCSB, Anderson Accounting for A/R and Bad Debts Accounting for A/R and Bad Debts Journal entry for credit sale of $100 ? Collected of $333 on account ? Accounts receivable 100 Cash 333 Sales 100 Accounts receivable 333 Allowance for Allowance for Accounts Receivable Doubtful Accounts Accounts Receivable Doubtful Accounts Beg. 500 25 Beg. Beg. 500 25 Beg. Sale 100 Sale 100 End. 600 25 End. End. 600 25 End. Slide Slide 7-21 UCSB, Anderson 7-22 UCSB, Anderson Accounting for A/R and Bad Debts Accounting for A/R and Bad Debts Collected of $333 on account ? Adjustment of $15 for estimated Bad-Debts ? Cash 333 Bad debt expense 15 Accounts receivable 333 Allowance for Doubtful Accounts 15 Allowance for Allowance for Accounts Receivable Doubtful Accounts Accounts Receivable Doubtful Accounts Beg. 500 25 Beg. Beg. 500 25 Beg. Sale 100 333 Coll. Sale 100 333 Coll. End. 267 25 End. End. 267 25 End. Slide Slide 7-23 UCSB, Anderson 7-24 UCSB, Anderson Accounting for A/R and Bad Debts Accounting for A/R and Bad Debts Adjustment of $15 for estimated Bad-Debts ? Write-off of uncollectible accounts for $10 ? Bad debt expense 15 Allowance for Doubtful accounts 10 Allowance for Doubtful Accounts 15 Accounts receivable 10 Allowance for Allowance for Accounts Receivable Doubtful Accounts Accounts Receivable Doubtful Accounts Beg. 500 25 Beg. Beg. 500 25 Beg. Sale 100 333 Coll. 15 Est. Sale 100 333 Coll. 15 Est. End. 267 40 End. End. 267 40 End. Slide Slide 7-25 UCSB, Anderson 7-26 UCSB, Anderson Accounting for A/R and Bad Debts Assets Current Assets: Write-off of uncollectible accounts for $10 ? Cash $ 346 Allowance for Doubtful accounts 10 Accounts receivable, net of $30 allowance for doubtful accounts 227 Accounts receivable 10 Inventory 812 Prepaids _ 40 Allowance for Total current assets 1,673 Accounts Receivable Doubtful Accounts Fixed Assets: Beg. 500 25 Beg. Office equipment 5,679 Sale 100 333 Coll. 15 Est. Furniture & fixtures 6,600 Less: Accumulated depreciation (3,735) 10 W/O W/O 10 Total fixed assets 8,544 Total Assets $10,217 End. 257 30 End. Slide Slide 7-27 UCSB, Anderson 7-28 UCSB, Anderson Estimating Uncollectible Accounts: Comparison of Methods The Allowance Methods Percentage of Sales Percentage-of-sales method Income Percentage-of-receivable method: Matching Statement Approach Ending Accounts Receivable Sales --- Bad Debt Expense Aging of Accounts Receivable Percentage of Receivables Balance Net Realizable Value Sheet Approach Receivables - Allowance for Bad Debt Slide Slide 7-29 UCSB, Anderson 7-30 UCSB, Anderson Estimating Bad Debt Expense Percentage-of-Sales Approach Data Charge sales $500,000 Charge sales $500,000 Estimated percentage x 1.25% Estimated % of charge sales not collected 1.25% ------------- Accounts receivable balance $72,500 Estimated expense $ 6,250 Estimated % of A/R not collected 8% ====================================== Allowance for Doubtful Accounts: $150 (credit What should the ending balance be for the balance) allowance account? Slide Slide 7-31 UCSB, Anderson 7-32 UCSB, Anderson Percentage-of-Sales Approach Percentage-of-Receivables Approach Accounts receivable $72,500 Actual balance (150) Estimated percentage x 8% Adjustment (6,250) ---------- Ending balance (6,400) Desired balance $ 5,800 Journal entry: Bad debt expense 6,250 Allowance for D.A.
Load more

Recommended publications
  • Accounts Receivable Purchase Programs Offer Compelling Financing Advantages
    Accounts Receivable Purchase Programs Offer Compelling Financing Advantages By John Padwater Director, Financial Supply Chain Americas [email protected] Although the global financial crisis is behind us, corporations continue to seek new and more advantageous sources of liquidity. One strategic financing option that is gaining popularity is an accounts receivable (A/R) purchase program. In an A/R purchase program, a bank typically purchases a corporation's receivables as soon as the company delivers goods to its customer and issues an invoice. Advantages of such a program can include less expensive financing, favorable off- balance sheet treatment of receivables assets, and reduced credit risk related to the particular obligor. Many corporations are turning to A/R purchase programs because of the negative impact that recent regulatory and accounting changes have had on two other financing alternatives — asset-based lending (ABL) facilities and asset securitization programs. Regulatory and Accounting Drivers Basel III, the latest global regulatory standard for bank capital adequacy, can require financial institutions to hold more capital in support of ABL facilities and asset securitization programs than if they were providing financing through an A/R purchase program. This creates a pricing advantage for corporations selling their receivables. In an asset-based loan, a bank takes a security interest in the collateral. In contrast, with an A/R purchase program, the bank purchases the receivable on a true sale basis, often buying a 100% interest in it on a non-recourse or limited-recourse basis. This affords a particular advantage to non-investment grade companies that have substantial accounts receivable due from investment grade or highly rated counterparties.
    [Show full text]
  • Cash Receipts /Accounts Receivable
    Section 8 – Cash Receipts /Accounts Receivable Overview Most local governments collect revenue over the counter and through the mail from the general public in the form of cash, personal checks, credit and debit card transactions, or money orders. Many local governments are also offering online payment options and direct debit of customers’ bank accounts for repetitive payments such as monthly utility bill payments. Collections may take place at multiple locations throughout the government’s operations and be for a number of purposes including: Tax payments Utility payments Various fees and charges Court collections Permits and licenses Other service charges It is necessary to establish an adequate system of controls to assure that all amounts owed to the government are collected, documented, recorded, and deposited to the bank accounts of the government entity, and to detect and deter error and fraud. Suitable controls should be established at each location where payments are received as well as at the centralized collections point. Documentation for each transaction may be generated manually by the use of a pre-numbered receipt form or through the use of a cash register, computer, or other electronic device that will provide the customer with a validated receipt and detailed and/or summary information for the government to use for balancing, reconciliation and auditing purposes. At the end of the day, this documentation is typically reconciled to the total of the cash, checks, and other forms of payment received. Total daily receipts are either manually recorded to the accounting system, or uploaded automatically by way of an electronic interface between the cash receipting and the accounting systems.
    [Show full text]
  • Cash Forecasting: Challenges, Modelling, and Visualization April 8, 2019
    Cash Forecasting: Challenges, Modelling, and Visualization April 8, 2019 © 2019 Treasury Webinars . All Rights Reserved 1 About Treasury Webinars Treasury Webinars offers webinars designed to empower Treasury, Accounts Payable, and Accounts Receivable success at companies of all sizes, across all industries. We only do what we do best, webinars. © 2019 Treasury Webinars . All Rights Reserved 2 Learning Objectives • Separate cash forecasting myths from reality and define what a successful cash forecast looks like at your company. • Revise specific areas of your cash forecasting process to improve the quality of the short and long-term cash forecasts at your company. • Understand how forecasting done right improves strategic planning and delivers business agility for your company. © 2019 Treasury Webinars . All Rights Reserved 3 Our Agenda • Why Cash Forecasting Matters • Cash Forecasting Myths • Defining Your Cash Forecasting Process & Framework • Leveraging the Right Technology • Cash Forecasting Best Practices • Final Thoughts & Resources © 2019 Treasury Webinars . All Rights Reserved 4 Why Cash Forecasting Matters • Impacts borrowing and investment decisions • Impacts debt covenant compliance risk • Impacts working capital efficiency • Increase visibility into the sources and uses of cash along with the associated costs and benefits • Impacts financial agility • Impacts operational agility • Increased investor focus on cash balances and cash deployment efficiency © 2019 Treasury Webinars . All Rights Reserved 5 Why Cash Flow Forecasting Matters © 2019 Treasury Webinars . All Rights Reserved 6 Budget vs. Plan vs. Forecast •Budget- What you would like to happen •Plan- How you are going to make it happen •Forecast- What you think is going to happen © 2019 Treasury Webinars . All Rights Reserved 7 A Forecast is NOT a Target © 2019 Treasury Webinars .
    [Show full text]
  • Example of Accounts Receivable Journal Entry
    Example Of Accounts Receivable Journal Entry Marve is crumbled and infamize blameably while podgier Moises republicanised and daggings. Ash debug his alienist sheared exhibitively, but primed Dale never feigns so exultingly. Ken is assuming: she preconsumes affirmatively and tresses her onyxes. Ar aging information by allowing a receivable accounts receivable are some rules of vendors on liquidity metrics Anderson air is journal entries examples are example prepares this receivable account for credit entries that receive cash and credit cards where otherwise noted earlier in business? If you no is recorded in the business case is the apt is due, if you from receivable example of accounts journal entry to a journal? The departmental system is used to generateaging reports and support the rock data recorded in the Finance System. Accounts of accounts payable to another example calculations, accountants wait for accountancy exists, approximating anticipated to be used to make payment can ask yourself? Below to your journal entries examples provided for example of accounts receivable turnover in other words, these benefits inflow to confuse you? It simply reduces accounts receivable and rainbow for bad debts by equivalent amounts. Ltd sold some truck parts to Mr. When the credit, accountants now that are past history of receivable example accounts journal of entry. System explains the role of Debit and Credit transactions in keeping track of accrued items, and for keeping the balance sheet balanced. Remitted the balance due to Salem Bank. Carefully monitor and example, in this task, or penalties assessed where do not include factoring arrangement of accounts increase to ccs will.
    [Show full text]
  • Accounts Receivable Billing and Collections Training Guide
    Accounts Receivable Billing and Collections Training Guide Version 4.0 AFIS | AR Billing and Collections Table of Contents About This Training Guide ..................................................................................................... 4 Training Guide Description .................................................................................................................... 4 Training Guide Objectives ..................................................................................................................... 4 1. Overview of Accounts Receivable .................................................................................... 5 1.1. Accounts Receivable Lifecycle .................................................................................................... 5 1.2. Customer Setup .......................................................................................................................... 7 1.3. Accounts Receivable Event Types ............................................................................................. 10 1.4. Accounts Receivable Inquiry Pages .......................................................................................... 11 2. Create a Receivable Document...................................................................................... 15 2.1. Receivable Document Components ......................................................................................... 16 2.2. Receivable Document Data Entry ............................................................................................
    [Show full text]
  • Cash Conversion Cycle
    Session # 205 5/18/17 from 2:00-3:15 Cash Conversion 250 Commercial Street, STE 3012 Manchester, NH 03101 Cycle (603)573‐9206 Breathing Life into a Stale Dying Process Background FASB describes liquidity as reflecting “an asset’s or liability’s nearness to cash” (Statement of Financial Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business Enterprises; PP 24, Footnote13). In accounting and auditing textbooks, the current and quick ratios continue to be the focus of liquidity analysis. Noticeably absent from most accounting and auditing textbooks is an approach to liquidity analysis that incorporates the element of time—the cash conversion cycle (CCC), was introduced in 1980 by Verlyn Richards and Eugene Laughlin in their article “A Cash Conversion Cycle Approach to Liquidity Analysis,” Financial Management, Vol. 9, No.1 (Spring 1980). Consideration of the CCC along with the traditional measures of liquidity should lead to a more thorough analysis of a company’s liquidity position. Static measures of liquidity, such as the current ratio, do not account for the amount of time involved in converting current assets to cash or the amount of time involved in paying current liabilities and…can be easily manipulated. Methodology Let’s discuss the elephant in the room… Static Measures of Liquidity An illustration of Static Measures Company A has $1,000,000 in current assets and $750,000 in current liabilities. The current ratio reveals that the Company A can cover its current liabilities with its current assets 1.33 times [$1,000,000 ÷ $750,000]. If Company A wished to maintain a higher current ratio or if a creditor’s loan covenant requires a higher current ratio, Company A could pay $500,000 of its current liabilities.
    [Show full text]
  • Learn Debits and Credits
    LEARN DEBITS AND CREDITS Written by John Gillingham, CPA LEARN DEBITS AND CREDITS Copyright © 2015 by John Gillingham All rights reserved. This book or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations in a book review. TABLE OF CONTENTS Introduction .................................................................................................... 6 More Resources .............................................................................................. 7 Accounting Play – Debits & Credits ......................................................... 7 Accounting Flashcards ............................................................................ 7 Free Lessons on Podcast and Downloads ................................................ 8 Intro to Debits and Credits .............................................................................. 9 Debits and Credits Accounting System .................................................... 9 The Double Entry System ........................................................................11 Different Account Types..........................................................................12 Debits and Credits Increases and Decreases ...................................................15 Increases and Decreases .........................................................................15 Debits and Credits by Account ................................................................16
    [Show full text]
  • When to Debit and Credit in Accounting
    When to Debit and Credit in Accounting Journal entries show a firm’s transactions throughout a period of time; for example, when a company purchases supplies a journal entry will show the amount of supplies bought and money spent. According to the practice of double-entry accounting, every journal entry must: • Include at least two distinct accounts with at least one debit and one credit. • Have the total monetary amount of debits equal to the total monetary amount of credits. • Be consistent with the accounting equation, Assets = Liabilities + Equity. (Wild, Shaw, and Chiappetta, 55) An asset is loosely defined as a resource with economic value that a particular firm has, and includes accounts such as cash, accounts receivable, and office supplies. Liabilities are the debts and obligations a company accumulates in operating the business; it includes accounts such as accounts payable, wages payable, and interest payable. Equity represents the amount of ownership in an asset that is not financed through debt. Equity begins with the owner’s capital, which are personal investments of assets by the owner, and grows as revenues are accrued over the course of business operations. Equity shrinks when the owner withdrawals capital and/or expenses are incurred. Thus the accounting equation, Assets = Liabilities + Equity, can be roughly translated as, “things we have are backed by things we owe and things we own.” A chart of accounts, which list commonly used accounts and their type, is included as an appendix in most accounting text books. The following diagram depicts the accounting equation such that equity is broken down into the component accounts of Capital, Withdrawals, Revenue, and Expenses, and illustrates how each type of account reacts to debits and credits.
    [Show full text]
  • Job Title:​ Bookkeeper/Accounts Receivable
    Job Title: Bookkeeper/Accounts Receivable Clerk ​ Reports To: Range Marketing Partners ​ Job Summary: At Range Marketing, we value building meaningful relationships, holding ourselves accountable, maintaining positivity within ourselves and others, and encouraging learning and change in everything we do. This extends not only to our employees but to our clients as well, as we work to encourage the growth of the organizations we work with. To that end, we’re looking for a skilled Bookkeeper/Accounts Receivable Clerk to help manage our company and client finances. If you’re a good fit, you have experience monitoring and managing billing procedures, maintaining accounts receivables, and working with Quickbooks. You also love working with numbers and are highly organized, detail-oriented, efficient, able to coordinate simultaneous projects, and looking for a long-lasting career with a company that cares about your success and growth. Since this will be a client-facing role, you must also be a strong communicator. This position is part-time with the potential to expand to full-time. Your responsibilities may include: ● Preparing invoices, sales receipts, and purchase orders by scheduled due dates ● Maintaining accounts receivables, including invoicing, deposits, and collections ● Auditing billing against live account fulfillment on a monthly basis ● Protecting operations by keeping financial information confidential ● Categorizing all financial transactions and performing other bookkeeper tasks ● Researching and implementing improvements to
    [Show full text]
  • Cash Conversion Cycle Strategies to Avoid Business Failure
    Walden University ScholarWorks Walden Dissertations and Doctoral Studies Walden Dissertations and Doctoral Studies Collection 2020 Cash Conversion Cycle Strategies to Avoid Business Failure Brian Savino Walden University Follow this and additional works at: https://scholarworks.waldenu.edu/dissertations Part of the Finance and Financial Management Commons This Dissertation is brought to you for free and open access by the Walden Dissertations and Doctoral Studies Collection at ScholarWorks. It has been accepted for inclusion in Walden Dissertations and Doctoral Studies by an authorized administrator of ScholarWorks. For more information, please contact [email protected]. Walden University College of Management and Technology This is to certify that the doctoral study by Brian J. Savino has been found to be complete and satisfactory in all respects, and that any and all revisions required by the review committee have been made. Review Committee Dr. Chad Sines, Committee Chairperson, Doctor of Business Administration Faculty Dr. Craig Martin, Committee Member, Doctor of Business Administration Faculty Dr. Judith Blando, University Reviewer, Doctor of Business Administration Faculty Chief Academic Officer and Provost Sue Subocz, Ph.D. Walden University 2020 Abstract Cash Conversion Cycle Strategies to Avoid Business Failure by Brian J. Savino MBA, Wright State University, 2010 BS, Wright State University, 2006 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University August 2020 Abstract At the end of 2018, the leading 2,000 U.S. and European companies had more than $2.5 trillion of cash unnecessarily tied up in working capital. The efficient management of working capital will lead to more cash invested in profitable projects leading to long term stability.
    [Show full text]
  • Receivables and Revenue Recognition
    Receivables and Revenue Recognition 15.501/516 Accounting Spring 2004 Professor S. Roychowdhury Sloan School of Management Massachusetts Institute of Technology Feb 23 and 25, 2004 1 WHY DO WE CARE ABOUT REVENUE RECOGNITION? Revenue has a BIG impact on bottom-line profitability ==> managers may be tempted to manage revenue Large Sample Evidence: over 40% of SEC enforcement actions on accounting issues deal with Revenue Recognition Sample of headlines from searching Dow Jones Newswire for 2004 and 2003: Ceridian Results for 2000-2003 to restated, Feb 18 Wolf Popper files Securities Class Action against Sonus Networks, Feb 13, 2004 Tripos postpones earnings release – will revise revenue recognition policies, Feb 12 Opsware expects 100% revenue growth, points out transparent revenue recognition policies, Feb 11 Agco Corp faces class action suit, Feb 6 2 CRITERIA FOR REVENUE RECOGNITION Under accrual accounting, a firm recognizes revenue when it has: Performed all, or a substantial portion of, the services to be provided. Incurred a substantial majority of the costs, and the remaining costs can be reasonably estimated. Received either cash, a receivable, or some other asset for which a reasonably precise value can be measured collectibility is reasonably assured. 3 Cash Basis vs Accrual Basis Recognition Criteria Accrual Cash Revenue Expense 4 Cash Basis vs Accrual Basis Recognition Criteria Accrual Cash Revenue when $ rec’d Expense when $ paid 5 Cash Basis vs Accrual Basis Recognition Criteria Accrual Cash Revenue when earned when $ rec’d and realized Expense when incurred when $ paid 6 EXAMPLES OF REVENUE RECOGNITION EVENTS z At the time of sale (This is, by far, most commonly encountered.) z Title passes to the buyer and delivery takes place z Reasonable estimate of uncollectibles z Reasonable estimate of sales returns z Reasonable estimation of all other material expenses representing uncertain future outflows (e.g., warranty costs).
    [Show full text]
  • Accounts Receivable Flow Accounts Receivable & Accounts Payable
    Accounts Receivable Flow Accounts Receivable & Accounts When a business makes sales or purchases on credit, a cash based accounting Payable method does not provide a comprehensive reporting system for managing unpaid bills or for tracking multiple customer receivables. In RezExpert, when a business makes sales To Account i.e. on credit — the accrual basis of accounting will not only record the revenue in the proper time period, it will also keep track of accounts receivable amounts due from customers on 2 completed sales and tracking of partial payments is available & necessary. The accrual basis gives a more accurate picture of profit or loss because it includes all revenues, paid or unpaid. Refer to Support website for full documentation on using Accounts Receivable https://support.rezexpert.com/?s=accounts 1 How RezExpert reports Sales “To Account” February 1st – A $110.00 reservation balance is transferred from a “Cabin” booking to an individual or company’s Accounts Receivable. The Daily Trial Balance will report the following: Debit Credit Accounts Receivable $110.00 Tax-GST 10% $ 10.00 Cabin Revenue $100.00 March 15th – The individual or company pays the account $110.00 by VISA. The Daily Trial Balance will report the following: Debit Credit 3 Accounts Receivable $110.00 VISA $110.00 2 Account Review/Aging Panel The Account Review/Aging Panel will display the current AR balance. 3 RezExpert Trial Balance The RezExpert Trial Balance reports all debit & credit movements in & out of the Accounts Receivable ledger. An audit report, Reports > Income> Trial Balance can be run from the first Business day operating with RezExpert to Today, the Trial Balance will display the current AR balance.
    [Show full text]