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7 Cards in this Set
- Front
- Back
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Bank reconciliation |
comparing the bank balance with the balance in the company's own records and reconciling any differences. Differences arise from timing differences and errors Time differences: company and bank record transactions at separate times. Bank may have adjusted its balance for items the company is not aware of, while the company may have adjusted the book balance for items the bank is not aware of. Errors can be made by the company or the bank, such as a check written for too much or too little money. Include adjustments to balance per bank for timing differences, which includes checks outstanding and deposits in transit. Adjustments to balance per bank would also include bank errors discovered. The balance per books is adjusted for transactions involving timing differences, which includes service charges, charges for NSF checks, and collections made by the bank on the company's behalf. Additionally, balance per book is adjusted for any company errors discovered. Only adjustments to the book balance require journal entries. Steps: 1. Adjustments to bank balance 2. Adjustments to book balance 3. Adjusting journal entries |
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Petty Cash |
Provides an efficient way to handle routine small payments, such as for low-cost items. Established by transferring a specified amount of cash from the company's general checking account to an employee designated as the petty cash custodian. Fund should always have cash receipts that together equal the amount of the fund. Expense accounts debited when reimbursing petty cash fund. petty cash fund not debited when replenishing the fund, but the account is debited or credited when the size of the fund increases or decreases. |
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Impairment of a receivable |
For long-term receivables and notes, companies can consider information specific to the receivable when estimating bad debts.
Impairment loss on a receivable is recognized if the creditor believes it is probable that it will not receive all of the cash flows that been promised by the debtor.
Creditor remeasures the receivable based on the PV of the current expected cash flow, discounted at the loan's original effective interest rate.
In the future, if additional information indicates that conditions have changed, then BDE and AFDA are adjusted accordingly.
To avoid double counting when recognizing impairment loss on a receivable, the impaired receivable must be separated from the rest of the receivables. Once separate, BDE should be calculated for impaired receivables and the rest of the receivables separately. |
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Troubled debt restructuring |
Creditors make concessions to the debtor in response to the debtor's financial difficulties. |
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When the Receivable is continued but with modified terms |
In a troubled debt restructuring, a bank may allow a receivable to continue, but with modified terms to make it easier to the debtor to comply with the terms of the debt agreement.
The lender may agree to reduce or delay the scheduled interest payments; or reduce or delay the maturity amount. Often a troubled debt restructuring will call for some combination of these concessions. |
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When the receivable is settled outright |
A receivable in a troubled debt restructuring may be settled at the time of the restructuring by the debtor making a payment of cash, some other noncash assets, or even shares of the debtor's stock. Creditor simply records a loss for the difference between the book value amount of the receivable and the fair value of asset(s) or equity securities received. |
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IFRS(IAS 39) and current U.S. GAAP(ASC 310): Impairments |
Generally provide similar treatments of impairments of receivables.
Differences:
Levels of analysis-
GAAP: impairment of individual receivables examined. If impairment is not indicated, the receivables are grouped with other receivables of similar risk traits when estimating bad debts for the group
IFRS: Impairment of individually significant receivables are examined. If impairment is not indicated, the receivables are grouped with other receivables of similar risk to test impairment.
Impairment indicators:
GAAP: -Illustrative list of information to consider when evaluating receivables for impairment -requires measurement of potential impairment if a)is viewed as probable and b) can be estimated reliably.
IFRS: -illustrative list of loss events -requires measurement of impairment if there is objective evidence that a loss event has occurred that has an impact on future cash flows to be collected and that can be estimated reliably. -loss may be recognized later under IFRS than GAAP.
Reversal of impairments is the same for both IFRS and GAAP whereby if an impaired receivable's estimated future cash flows improve, the creditor recalculates the impairment and adjusts the valuation allowance up or down as appropriate. |
