BUSINESS ECONOMICS: ALL LEARNING OBJECTIVES PER CHAPTER EXPLAINED!
- Chapter 7 -
Financial assets are liquid assets whose value come from a contractual claim. In the
balance sheet, financial assets are shown at their current values. Current value is
measured differently for each type of financial asset.
Type of Financial Asset Basis for Valuation in the Balance
Sheet
Cash (and cash equivalents*) Face amount
Marketable securities (short-term Fair market value
investments)
Receivables Net realizable value
*Some short-term investments are so liquid that they are called cash equivalents. For
example, money market funds, U.S Treasury bills, and high-grade commercial paper.
Cash equivalents are very safe, have a very stable market value, and mature within
90 days of the date of acquisition.
Cash management refers to planning, controlling, and accounting for cash
transactions and cash balances. It means the management of all financial resources.
Objectives:
Provide accurate accounting for cash receipts, cash disbursements, and cash
balances.
Prevent or minimize losses from theft or fraud.
Anticipate the need for borrowing and assure the availability of adequate
amounts of cash for conducting business operations.
Prevent unnecessarily large amounts of cash from sitting idle in bank accounts
that produce no revenue.
Internal control over cash is sometimes regarded mainly as a means of preventing
fraud and theft. A good system of internal control will also achieve the other cash
management objectives.
Bank reconciliation = a schedule explaining any differences between the balance
shown in the bank statement and the balance shown in the depositor’s accounting
records. The bank and the depositor maintain independent records of the deposits,
the checks, and the current balance of the bank account. Each month, the depositor
should prepare a bank reconciliation to verify that these independent sets of records
match.
Helpful! Page 295: How to Prepare a Bank Reconciliation
Accounts receivable are relatively liquid assets, usually converting into cash within a
period of 30 to 60 days. Therefore, accounts receivable from customers usually appear
in the balance sheet immediately after cash and short-term investments in marketable
securities.
All accounts receivable arising from normal sales activity are generally classified as
current assets.
Internal control over receivables is designed to…
1
- Chapter 7 -
Financial assets are liquid assets whose value come from a contractual claim. In the
balance sheet, financial assets are shown at their current values. Current value is
measured differently for each type of financial asset.
Type of Financial Asset Basis for Valuation in the Balance
Sheet
Cash (and cash equivalents*) Face amount
Marketable securities (short-term Fair market value
investments)
Receivables Net realizable value
*Some short-term investments are so liquid that they are called cash equivalents. For
example, money market funds, U.S Treasury bills, and high-grade commercial paper.
Cash equivalents are very safe, have a very stable market value, and mature within
90 days of the date of acquisition.
Cash management refers to planning, controlling, and accounting for cash
transactions and cash balances. It means the management of all financial resources.
Objectives:
Provide accurate accounting for cash receipts, cash disbursements, and cash
balances.
Prevent or minimize losses from theft or fraud.
Anticipate the need for borrowing and assure the availability of adequate
amounts of cash for conducting business operations.
Prevent unnecessarily large amounts of cash from sitting idle in bank accounts
that produce no revenue.
Internal control over cash is sometimes regarded mainly as a means of preventing
fraud and theft. A good system of internal control will also achieve the other cash
management objectives.
Bank reconciliation = a schedule explaining any differences between the balance
shown in the bank statement and the balance shown in the depositor’s accounting
records. The bank and the depositor maintain independent records of the deposits,
the checks, and the current balance of the bank account. Each month, the depositor
should prepare a bank reconciliation to verify that these independent sets of records
match.
Helpful! Page 295: How to Prepare a Bank Reconciliation
Accounts receivable are relatively liquid assets, usually converting into cash within a
period of 30 to 60 days. Therefore, accounts receivable from customers usually appear
in the balance sheet immediately after cash and short-term investments in marketable
securities.
All accounts receivable arising from normal sales activity are generally classified as
current assets.
Internal control over receivables is designed to…
1
