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Critical Issues-Current Assets

Critical Issues-Current Assets. Sufficient liquidity to meet obligations Sufficient liquidity to take advantage Speed of liquidity Long-term liquidity Meeting investment objectives Source of financial assets Sufficient liquidity for distribution. Asset Cash Accounts Receivable

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Critical Issues-Current Assets

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  1. Critical Issues-Current Assets • Sufficient liquidity to meet obligations • Sufficient liquidity to take advantage • Speed of liquidity • Long-term liquidity • Meeting investment objectives • Source of financial assets • Sufficient liquidity for distribution

  2. Asset Cash Accounts Receivable Notes Rec.-L/T Invest-Held to Maturity Trading Securities Available for Sale Sec. Basis Stated amount Net Realizable Value Present Value Adjusted Cost Market Value (P/L) Market Value (Equity) Valuation

  3. Cash • Cash • Investments with 90 days or less to maturity at time of acquisition • Restricted Cash • Foreign Cash---->translate to US $

  4. Accounts Receivable • Amounts due from customers • Recognition • Process complete • Amount measurable • Costs identifiable • Balance is collectible

  5. A/R Valuation • Net Realizable Value • Frequent Monitoring • A/R Turnover and DSO (Days Sales Outstanding) • Older A/R are usually less collectible

  6. Bad Debt Expense • Recognition based on past experience • Follows the matching principle • Basis of estimates • % of sales • Aging of A/R

  7. Accounting for Bad Debts • Recording the Allowance for Bad Debts • Dr. Bad Debt Expense; Cr. Allowance • Writing off Bad Debts • Dr. Allowance; Cr. Specific A/R • Adjusting Prior Write-offs • Dr. Cash; Cr. Allowance

  8. F/S Presentation • Allowance for Bad Debts--Contra Account on the Balance Sheet • Potential for subjective interpretation • Current asset if collectible w/in a year • Financing opportunities • Pledging-borrowings on all • Assigning-borrowings on specific acct. • Factoring-sale of specific acct. • With or without recourse

  9. Inventory Acquisition • What units • What costs

  10. Cost Basis • Sacrifice to put into use • Components • Net price • Freight • Production • Preparation • Fees • N.B.....future benefit

  11. Inventory Methods • Perpetual • B + I - O = E • Periodic • B + I - E = O

  12. Cost Flow Assumption • Specific ID • Averaging • FIFO…first in; first out • LIFO…last in; first out • Applies to costs only, NOT physical movement • Disclose both values • Use same method for book and tax

  13. Inventory Valuation • Lower of Cost or Market

  14. Lower of Cost or Market • Determine historical cost • Chose appropriate market value • Replacement cost...current price to replace • Net realizable value…ceiling • NRV less normal profit…floor

  15. Critical Cost Terms • Fixed vs. Variable • Product vs. Period • Manufacturing vs. Non-manufacturing • Direct vs. Indirect • Controllable vs. Uncontrollable • Opportunity and Sunk Costs • Cost Driver • Differential Cost and Revenue

  16. RAW MATERIAL WORK-IN-PROCESS FINISHED GOODS BOH I O EOH B O/H R/M B O/H WIP B O/H F/G R/M TRANSFERS DIR. LABOR MFG OVERHEAD MANUFACTURING COSTS COST OF GOODS MANUFACTURED (COGM) E O/H WIP COGM COST OF GOODS SOLD (COGS) E O/H F/G R/M PURCHASES TRANSFERS TO WIP E O/H R/M P&L Manufacturing Cost Flows

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