Category Archive for: Financial Assets

Concentrations of Credit Risk

Assume that a business operates a single retail store in a town in which the major employer-is a steel mill. What would happen to the collectibility of the store’s accounts receivable if the steel mill were to close, leaving most of the store’s customers unemployed? This situation illustrates what accountants call a concentration of credit risk, because’ many of…

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Conservatism in the Valuation of Accounts Receivable

We previously have made reference to the accounting concept of conservatism. In accounting, conservatism means resolving uncertainty in a manner ~hat minimizes the. risk of overstating the company’s current financial position. With respect to the valuation of accounts receivable, conservatism suggests that the allowance for doubtful accounts should be at least adequate. That is, it is better to err…

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SHORT TERM INVESTMENTS

Companies with large amounts of liquid resources often hold most of these resources in, the form of marketable securities rather than cash. Mark-to-Market: A New Principle of Asset Valuation· Accounting principles are not “carved in stone.” Rather, they evolve and change as the accounting profession seeks to increase the usefulness of accounting information. A 1993 change in the way companies…

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Financial Assets

1. Define financtal assets and explain their valuation in the .balance sheet. 2. Describe the ,objectives of cash management. 3. Explain means of achieving internal control over cash transactions, 4: Peoare a bank reconciliation and explain its purpose. 5. Account for uncolleciible receivables using the allowance and direct write-off methods. 6.valuate the liquidity of various financial assets. 7. Explain how transactions discussed in this chapter…

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