Accounting Current Assets

Objectives of Internal Control systems include

1) to provide accurate accounting records and financial statements 2) to safe guards assets from theft

Examples of Current assets

1)Cash 2) Accounts Receivable 3)Inventory

Accounts receivable

Accounts receivable represent cash owed to the company. Accounts receivable come about when the company makes a credit sale (i.e., a sale on account)

Current Assets

Assets expected to be converted into cash within one year form the balance sheet date

Segregation of duties is achieved when the following functions are separated:

Authorization: Recording: Custody:

Allowance for bad debts formula

Beginning balance+ bad debt expense -Write offs =ending balance

Cash is defined as any deposit banks will accept

Coins and paper money checks money orders bank credit card sales

Segregation of duties

Ensures that more than one person is involved in a transaction from beginning to end. Requires that no single employee be given too much responsibility over business transactions.

RATIONALE: MATCHING CONCEPT

Expenses are to be recorded in the same year they help to generate revenues. Revenue is earned when the sale is made, thus bad debt expense must be recorded in the same year.

QUESTION: In which year should bad debt expense be recorded?

In the year the credit sale is made

net realizable value

NRV = Accts receivable - Allowance

Sales discounts

Offer of a cash discount to a credit customer for the prompt payment of a balance due - Example: 3/10, n/30• This is read as 'three, ten, net, thirty'• It means a 3% discount is allowed on all payments made within 10 days. After 10 days there is no discount available, and the remaining balance is due in 30 days. - Classified as a contra revenue account (meaning it results in a decrease to revenues on the income statement and thus a decrease to net income)

Cast s the asset the is most

Susceptible to theft

ESTIMATE

This means that bad debt expense is an

Internal Control System

a set of policies and procedures established by the company to provide reasonable assurance that the firms objectives will be met

Allowance for bad debts:

causes a decrease in assets• classified as a contra asset account• normal balance is a credit• found on the balance sheet directly underneath accounts receivable as a decrease• represents the amount of accounts receivable the company estimates it will not collect

A very common control over cash

segregation of duties

Bad debt expense:

• classified as an expense account • found on the income statement • reduces net income