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Ebook Introduction to financial accounting (2nd edition): Part 2

(BQ) Part 2 book "Introduction to financial accounting" has contents: Cash and ireceivables, long-lived assets, debt financing - Current and non current liabilities, debt financing - bonds, equity financing, proprietorships and partnerships. | CHAPTER SEVEN Cash and Receivables This chapter focuses on two types of current assets – cash and receivables. Internal control over cash involves processes and procedures that include the use of a petty cash fund and the preparation of a bank reconciliation. Receivables can be determined to be uncollectible. To match the cost of uncollectible accounts and the related revenue, bad debts must be estimated using either the income statement method or balance sheet method. Actual account receivables are written off when judged to be uncollectible. Write-offs can be subsequently recovered. The journalizing of short-term notes receivable and related interest revenue is also discussed in this chapter. Chapter 7 Learning Objectives LO1 – Define internal control and explain how it is applied to cash. LO2 – Explain and journalize petty cash transactions. LO3 – Explain the purpose of and prepare a bank reconciliation, and record related adjustments. LO4 – Explain, calculate, and record estimated uncollectible accounts receivable and subsequent write-offs and recoveries. LO5 – Explain and record short-term notes receivable and calculate related interest. CHAPTER SEVEN / Cash and Receivables 331 A. Internal Control LO1 – Define internal control and explain how it is applied to cash. Assets are the lifeblood of a company. As such, they must be protected. This duty falls to managers of a company. The policies and procedures implemented by management to protect assets are collectively referred to as internal controls. An effective internal control program not only protects assets, but also aids in accurate recordkeeping, produces financial statement information in a timely manner, ensures compliance with laws and regulations, and promotes efficient operations. Effective internal control procedures ensure that adequate records are maintained, transactions are authorized, duties among employees are divided between recordkeeping functions and control of assets, and employees’