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Chapter 5

Chapter 5

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Department
Accounting
Course
ACC 110
Professor
Brad Mac Master
Semester
Fall

Description
Chapter 5 Cash - Makes the world go round - It’s cash that pays the bills (not income and revenue) - Without it business quickly grinds to a halt - Cash and liquid are important Cash Cycle - The cycle of investing cash in resources, providing goods or services to customers using those resources and collecting cash from customers Cash vs Accrual Accounting - Serve different objectives - Hence multiple financial statements Inventory Conversion period - Average length of time between receiving inventory from a supplier and selling it to a customer Payable deferral period - Average number of days between receiving of goods or services from a supplier to payment of the supplier Receivables conversion period - Average length of time between delivery of goods to customer and receipt of cash Inventory self-financing period - Average number of days between date inventory is paid for and the date it’s sold to a customer The Length of a cash Log - Delay between the expenditure of cash and the receipt of cash is called Cash Lag (5.2) - Varies from business to business - Less time supplies give an entity to pay - More time an entity give its customer - Lengthy manufacturing process = money for inventory for longer time - Cash log = short because there isn’t any inventory to contend with Basic IFRS Assumption - Unit of measure - Unit-of-measure assumption states that the economic activity of an entity can be effectively reported in term of a single unit of measure - A single unit of measure allows diverse information to be aggregated and summarized - Drawbacks: 1. Information about the individual items being measured is lost 2. Characteristics must easily measure in terms of dollar aren’t accounted 3. Changing purchasing power or money of money over time caused by inflation is ignored Entity concept - Assumes an entity of interest (corporation, partnership, proprietorship, a division of a corporation) can provide information that is separate from the information of owners or other entities - Going concern -> is an entity that will be continuing its operations for the foreseeable future - Periodic reporting -> States that meaningful financial information about an entity can be provided for periods or time that are shorter than an entity’s life The cash flow statement (Cash for short-term financing) - Income state
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