11 28 Lecture Notes - Chapter 7.docx

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Western University
Business Administration
Business Administration 2257
Baldwin Wallace

Liquid Assets and Internal Control GAP, $65/pair of jeans, selling for $125/pair of jeans - only 50 pairs sold at 125, sell the remaining pairs at $50/pair What entry should be made? 150 pr @ $65 DR inventory 9750 CR Cash 9750 SOLD 50 pr @ 125 DR cash 6250 CR sale 6250 DR COGS 3250 CR inventory 3250  for the pairs sold (no longer in inventory) SALES 6250 COGS 3250 GM = 3000 100 x (65-50) = 100 x $15 = $1500 DR COGS 1500 CR inventory 1500 (Income Statement) SALES 6250 COGS (4750) GM = 1500 or 24% You need two entries for sales – one for the actual sale… and one for COGS/Inventory Cash  What is cash? o Either physical cash or stuff we know is liquid  What makes cash liquid? o There is no way of identifying it… unless you have all the serial numbers  Do we care how much we have? o Yes – to have a stash of it in the bank is not always good – you don’t get interest on that and the bank may be charging you to keep it.  Do we need internal controls over cash? o Why or why not?  Yes – so cash doesn’t get lost and to make sure it’s going to a legitimate business o How might we control cash?  22,300 in chequing account o Yes  Investment certificate – pay 10,000 + interest when cashed (at any time) o Yes  $11,000 GIC maturing July 15 2012 o No – there may be penalties for cashing it early  $250 in petty cash o Yes  $7,000 in cheques received mid-December but not cashed o Yes – you should be making deposits right away so you don’t get “NSF” or “Not sufficient funds”  $4,200 owed by senior executive. Amount due January 5, 2012 o No – a loan or accounts receivable  £3,000 in a British bank account o Yes – you have to convert to report it but it does count. Big organizations usually have this because they are working globally. Example of “Cash”  Trent (2009) o Cash and cash = represent operating cash on deposit and units in a money market fund which are readily convertible to cash  Barrick Gold (2005) o Cash and cash = include cash, term deposits and treasury bills with original maturity of less than 90 days Account Receivables  What is a receivable o Money someone owes us – Like how Katey owes me $5  Types of receivables o Income tax receivable  Classification of receivables. Current or long-term. Why? o You missed this, dummy  What account entry do we make to record a receivable?
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