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Post-midterm notes Chapter 7-12.docx

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Leigh Sherry

Chapter 7 A financial asset is any asset that iso1 casho2 a contractual right to receive cash or another financial asset from another partyo3 contractual right to exchange financial instruments with another party under conditions that are potentially favourable to the entity oro4 an equity instrument of another entity Cash consists of coins currency available funds on deposit at the bank and petty cashoAlso includes money orders certified cheques cashiers cheques personal cheques bank drafts and usually savings accountsoPostdated cheques travel advances and stamps on hand are not classified as cash Restricted cash needs special attention in situations involvingo1 restricted casho2 cash in foreign currencieso3 bank overdraftso4 cash equivalents Compensating balanceminimum cash balances maintained by corporations in support of existing borrowingsoFunds not available for use by corporation but banks can use restricted cash Foreign currencies must be reported in Canadian dollars translated using the exchange rate on the date of the SFP Cash equivalentsshortterm highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in valueoOriginal maturity generally 3 months or less ie treasury bills moneymarket funds commercial papersoASPE excludes equity securitiesoIFRS allows some equity instruments to be classified as cash equivalents ie preferred shares acquired within a short time of their maturity dateReceives can be classified as either trade receivables or nontrade receivablesoTrade receivablesAccount receivables verbal promise to pay normally 3060 daysNotes receivables written promises with specific terms interest rate due dateoNontrade receivablesAdvances to employeesother officersReceivables from government GST recoverable income tax receivableDividends and interest receivableAmounts owing by insurance company Trade discounts are given to customers often for different quantities purchased generally not recorded whereas cash discounts encourage customers to pay faster and are recordedie 210 n30customer receives 2 discount for payment within 10 daysoTwo methods of recording cash discounts gross method and net methodGross methodrecords discount when customers pay within discount periodSales discount is deducted from sales on income statementNet methodrecords AR net of discount discount forfeited by customers are recorded when not takensales discount theoretically forfeited is recorded as other revenue
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