What is Cash Discount? Definition It is a rebate or allowance from the amount due granted by the creditor to the debtor at the time when the debtor makes payment before the due date. Cash discount is offered to encourage the early payment. If payment is due within a specified period of time after the …
Definition Cash In financial accounting, cash is defined as the sum of (1) currency and coins, (2) balances in checking accounts, and (3) items acceptable for deposit in these accounts, such as checks received from customers. Cash Equivalents Cash equivalents are those short-term investments that can be converted quickly to cash. They include such things …
A special checking account simplifies the reconciliation of the general account by avoiding a large number of relatively small outstanding checks. It also simplifies recordkeeping in that a separate cash disbursements journal can be maintained for each account. When it is necessary for a company to write a large number of checks for a particular …
What is Petty Cash? – Definition A petty cash fund is established by transferring a specified amount of cash from the general checking account to a person who is given custodial responsibility for the fund. Explanation of Petty Cash In most companies, there are many occasions in which a small amount of cash must be …
GAAP call for the presentation of information about restricted cash balance. These restrictions may include amounts set aside in escrow accounts which can be used only for a specified purpose. These amounts should be excluded from cash and from current assets if appropriate. There may be an informal restricted cash arising from management intent to …
The accountant has two concerns in reporting on cash equivalents: measurement of income and disclosure of the amount on the balance sheet date. The carrying value is the original amount invested plus accrued income. Depending on the amount of detail needed or desired for the report, highly liquid savings accounts or money market fund holdings …
Definition and Explanation Accountants disclose receivables when the reporting company has the right to receive cash, some other asset, or services from another party. Generally, only existing legal rights are disclosed in the body of the balance sheet. Contingent (or potential) rights to collect may be disclosed in the footnotes if they are material and if …
Trade Receivables Definition and Explanation Trade receivables can take the form of either open accounts or notes. They are almost always classified as current because their normal collection period is part of, and therefore less than, the operating cycle. In general, receivables should be recorded at the present value of the future cash flows, using …
Practice and theory are both unsettled with respect to the treatment of cash discounts. These reductions can be taken by the customer if the account balance is paid within a relatively short period. Cash discounts might be viewed first of all as rewards offered for prompt payment. Alternatively, cash discounts missed by customers may be …
The risk of extending credit arises from the possibility that the customer will not pay. This risk impacts both the measurement of income and the description of the receivables held by the seller. The accountant’s task involves consideration of these three issues: 1. What is the nature of the loss? 2. When does the loss …
Recording uncollectible accounts expense and bad debts Read More »
Definition and Explanation Pledging accounts receivable is essentially the same as using any asset as collateral for a loan. Cash is obtained from a lender by promising to repay. If the loan is not repaid, the collateral will be converted to cash and the cash used to retire the debt. The receivables can be either …
Definition and explanation The original holder obtains cash at once in return for the proceeds collected in the future, except that the collection process is handled by a third party (often known as a factor). If the assigned receivables are insufficient to repay the factor because of bad debts, the original holder must transfer additional …
Definition and explanation One of the differences between notes and accounts receivable is the greater negotiability of notes. A holder of a note can readily convert it to cash by discounting it at a bank, either with or without recourse. The bank accepts the note and gives the holder cash equal to its maturity value …
Under many normal situations, the management of a firm may decide that it would rather have cash at once than wait for the receivables to be collected. There are two broad approaches to generating cash from receivables. In one, the receivables are pledged as collateral for a loan. In the other, the receivables are assigned …