This chapter focuses on two types of current assets – cash and receivables. Internal control over cash involves processes and procedures that include the use of a petty cash fund and the preparation of a bank reconciliation. Receivables can be determined to be uncollectible. To match the cost of uncollectible accounts and the related revenue, bad debts must be estimated using either the income statement method or balance sheet method. Actual account receivables are written off when judged to be uncollectible. Write-offs can be subsequently recovered. The journalizing of short-term notes receivable and related interest revenue is also discussed in this chapter.
Learning Objectives
LO1 – Define internal control and explain how it is applied to cash.
LO2 – Explain and journalize petty cash transactions.
LO3 – Explain the purpose of and prepare a bank reconciliation, and record related adjustments.
LO4 – Explain, calculate, and record estimated uncollectible accounts receivable and subsequent write-offs and recoveries.
LO5 – Explain and record short-term notes receivable and calculate related interest.
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