Accy 111 Chapter 7

Cash equivalents would include investments in marketable equity securities as long as management intends to sell the securities in the next three months.

From a financial accounting perspective, the main purposes of a system of internal control are to improve the accuracy and reliability of accounting information and to safeguard assets. 

In a good system of internal control, the person who initiates a transaction should be allowed to effectively control the processing of the transaction through its final inclusion in the accounting records

Depending on the circumstances, the classification of a compensating balance may be either current or noncurrent, and the arrangement should be disclosed in the notes.

The net method of accounting for cash discounts requires adjusting entries for discounts taken. 

 Recognizing sales returns when they occur could result in an overstatement of income in the period of the related sale

The income statement approach to estimating bad debts requires an adjusting entry at the end of the period to reduce receivables to net realizable value.

Using the balance sheet approach, bad debt expense is an indirect result of estimating the net realizable value of accounts receivable.

Discounts on notes receivable are recognized as interest earned over the term of the related note

Unless specific sales criteria are met, the factoring of accounts receivable with recourse is accounted for as a loan.

Securitization of receivables is a type of secured borrowing.

The receivables turnover ratio provides a way for an analyst to assess the effectiveness of a company in managing its investment in receivables.

 In a bank reconciliation, adjustments to the bank balance could include adding deposits in transit and deducting bank service charges. 

 In a bank reconciliation, adjustments to the book balance could include adding or subtracting company errors

 The journal entry to record the replenishment of a petty cash fund includes a credit to the petty cash fund.