C6-1
Explain the concept of cash management and cash controls.
It is important for companies to stress the importance of cash management and cash controls for their businesses to be successful by effectively managing its cash to meet the needs of all the obligations while making an acceptable return on any surplus cash. Having separation of employee duties is a good way in which companies can reduce theft, waste and loss to the business by having internal control over cash processes. Dual responsibilities of receiving and opening mail is a good example.
C6-2
1. Explain the methods of recording accounts receivable with cash discounts.
Net Price Method – This method is when a company selling its goods or services assumes that the consumer will act on the discount that is offered and the company will then record the net price on the invoice, that means they deduct the cash discount as expected listing on both sales revenue accounts as well as accounts receivable during the time of sale. Gross Price Method – Businesses will use this method when they expect that a customer will not pay their bill during the discounted time-period in which it will then record the price in the full amount in both sales revenue and accounts receivable at the same time that the sale took place. 2. Discuss the theoretical soundness of each method. The net Price method would be the would be the preferred method for companies with a business model that the provide excessive discounts. The gross price method normally necessitates fewer record keeping and in addition, is more cost effective though by reporting receivable accounts at gross amounts, it streamlines communications to customers since discussions are based on the gross amount method. …show more content…
C6-3
1. Describe fully both the direct write-off method and the allowance method of recognizing bad debt expense.
Note Allowance method: A company will record the uncollectible accounts due the year the sale was made, then based on an estimated amount of the uncollectable accounts for the entity. This method will study the historical information associated with the data about the actual bad debts that have incurred including the credit risk strategies along with the policies, economic conditions, historical trends and the industries wide array of experiences.
Direct Write-off method: A company will record the uncollectible accounts when they determine that a specific customer account is uncollectible. The company will then write off the account by debiting bad debt expense and then taking the accounts receivable account and crediting it.
2. Explain the reasons why one of these methods is preferable to the other and the reasons why the other method is not usually in accordance with generally accepted accounting principles. The allowance for uncollectable accounts is an estimate of bad debt that can be adjusted if a …show more content…
Pledge receivables are only treated as a sale only if the transferor surrenders the control of the receivables which is treated as secured borrowing (assigning or pledging). Under GAAP, secured borrowing is considered one of two basic forms of financing that companies can do to obtain cash from their accounts receivables. This is how this process will be recorded and accounted for in Hamilton Company’s financial statements. To account for a secured borrowing as a sale with recourse by recording the proceeds received, then removing the transferred asset. Record the assets and liabilities controlled and recognize a gain or
Explain the concept of cash management and cash controls.
It is important for companies to stress the importance of cash management and cash controls for their businesses to be successful by effectively managing its cash to meet the needs of all the obligations while making an acceptable return on any surplus cash. Having separation of employee duties is a good way in which companies can reduce theft, waste and loss to the business by having internal control over cash processes. Dual responsibilities of receiving and opening mail is a good example.
C6-2
1. Explain the methods of recording accounts receivable with cash discounts.
Net Price Method – This method is when a company selling its goods or services assumes that the consumer will act on the discount that is offered and the company will then record the net price on the invoice, that means they deduct the cash discount as expected listing on both sales revenue accounts as well as accounts receivable during the time of sale. Gross Price Method – Businesses will use this method when they expect that a customer will not pay their bill during the discounted time-period in which it will then record the price in the full amount in both sales revenue and accounts receivable at the same time that the sale took place. 2. Discuss the theoretical soundness of each method. The net Price method would be the would be the preferred method for companies with a business model that the provide excessive discounts. The gross price method normally necessitates fewer record keeping and in addition, is more cost effective though by reporting receivable accounts at gross amounts, it streamlines communications to customers since discussions are based on the gross amount method. …show more content…
C6-3
1. Describe fully both the direct write-off method and the allowance method of recognizing bad debt expense.
Note Allowance method: A company will record the uncollectible accounts due the year the sale was made, then based on an estimated amount of the uncollectable accounts for the entity. This method will study the historical information associated with the data about the actual bad debts that have incurred including the credit risk strategies along with the policies, economic conditions, historical trends and the industries wide array of experiences.
Direct Write-off method: A company will record the uncollectible accounts when they determine that a specific customer account is uncollectible. The company will then write off the account by debiting bad debt expense and then taking the accounts receivable account and crediting it.
2. Explain the reasons why one of these methods is preferable to the other and the reasons why the other method is not usually in accordance with generally accepted accounting principles. The allowance for uncollectable accounts is an estimate of bad debt that can be adjusted if a …show more content…
Pledge receivables are only treated as a sale only if the transferor surrenders the control of the receivables which is treated as secured borrowing (assigning or pledging). Under GAAP, secured borrowing is considered one of two basic forms of financing that companies can do to obtain cash from their accounts receivables. This is how this process will be recorded and accounted for in Hamilton Company’s financial statements. To account for a secured borrowing as a sale with recourse by recording the proceeds received, then removing the transferred asset. Record the assets and liabilities controlled and recognize a gain or