Cash Account

Cash Account: Definition In accounting courses, the cash account is usually first explained as part of the ledger system. Some students may already be familiar with the simple recording of receipts and payments of money. The main rule for all cash accounts is that you debit cash coming in and credit cash paid out. Setting Up a Cash Account Assume that you start in business (a small retail shop) on…

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Aging Method of Accounts Receivable/Uncollectible Accounts

What Is the Aging Method? The aging method involves determining the desired balance in the Allowance for Uncollectible Accounts. The aim is to estimate what percentage of outstanding receivables at year-end will not be collected. This amount becomes the desired ending balance in the Allowance for Uncollectible Accounts. A credit entry is made to Allowance for Uncollectible Accounts, thereby adjust…

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Notes Receivable

Notes Receivable: Definition Notes receivable refers to a written, unconditional promise made by an individual or business to pay a definite amount at a definite date or on demand. The individual or business that signs the note is referred to as the maker of the note. The person to whom the payment is to be made is called the payee. Format of Notes Receivable A common format of notes receivable is…

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Cash Discount

Definition: Cash Discount Cash discount is a rebate or allowance from the amount due granted by the creditor to the debtor at the point when the debtor makes payment before the due date. Cash discount is offered to encourage early payment. If payment is due within a specified period after the invoice date, the number of days should be mentioned (e.g., if there are 10 days to make the payment, then…

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Cash and Cash Equivalents

Definitions Cash In financial accounting, cash is defined as the sum of: Currency and coins Balances in checking accounts Items acceptable for deposit in these accounts (e.g., checks received from customers) Cash Equivalents Cash equivalents are short-term investments that can be converted quickly into cash. They include such things as balances in savings accounts and money market funds, short-ter…

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Checking Account

A checking account simplifies the reconciliation of the general account by avoiding a large number of relatively small outstanding checks. It also simplifies recordkeeping because a separate cash disbursements journal can be maintained for each account. When it is necessary for a company to write a large number of checks for a specific purpose, it may be appropriate to establish a special account…

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Petty Cash

Petty Cash: Definition A petty cash fund is established by transferring a specified amount of cash from the general checking account to a person who is given custodial responsibility for the fund. Petty Cash: Explanation In most companies, there are many occasions when a small amount of cash must be spent at short notice. Generally, it is inconvenient (and costly) to ask for a check and wait for i…

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Restricted Cash

Generally Accepted Accounting Principles (GAAP) call for the presentation of information about restricted cash balance. These restrictions may include amounts set aside in escrow accounts, which can be used only for a specified purpose. These amounts should be excluded from cash and from current assets if appropriate. There may be informal restricted cash arising from management’s intention of usi…

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Cash Equivalents

When reporting on cash equivalents, accountants must consider: Measurement of income Disclosure of the amount on the balance sheet date The carrying value is the original amount invested plus accrued income. Depending on the amount of detail needed or desired for a financial report, highly liquid savings accounts or money market fund holdings can be combined with cash into a single item on the bal…

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Accounts Receivable

Accounts Receivable: Definition Accounts receivable arise from credit sales. For many retail firms, accounts receivable represents a substantial portion of their current assets. The function of a company’s credit department is to establish and enforce credit policies. Credit policies should protect the firm against excessive bad debts but should not be so restrictive as to eliminate customers who,…

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