Kế toán, kiểm toán - Chapter 4: Accounting for and presentation of current assets

CHAPTER 4Accounting for and Presentation of Current Assets1OverviewCash and cash equivalentsCash management programInternal control systemShort-term marketable securitiesBank reconciliationAccounts receivable and bad debtsInventoriesInventory cost-flow assumptions Impact of inventory errorsPrepaid expenses2Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCurrent AssetsAsset = future economic benefit, controlled by the entity as a result of past transactions. May be current or non-currentCurrent assets include cash and those assets that are expected to be converted to cash or used up within one year, or an operating cycle, whichever is longer.3Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynOperating CycleAn operating cycle is the average time it takes to convert an investment in inventory back into cash. Usually less than one year.PurchasesInventoryCredit salesAccountsreceivableCashcollectionPurchasesInventoryCashsalesCredit SaleCash Sale4Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynMarketable (short-term) securitiesReceivablesInventoriesPrepaid expensesCashCurrent AssetsCash equivalentsCurrent assets5Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCashCash on handCheque/savings accountsMoney ordersUndeposited receiptsPetty cash fundsCash include6Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCash EquivalentsHighly liquid short term investments, such as bank bills, money market funds and government securities. 7Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCash Management Program Invest excess cash with minimal risk. Assure the availability of adequate amounts of cash. Avoid unnecessarily large amounts of idle cash. Prevent theft and fraud.8Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Internal Control System Policies to minimise the chances of customer theft and employee embezzlement. Policies to safeguard all of an entities assets including cash.9Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Internal Control SystemInternal control objectives are to ensure:Effective and efficient operations.Safeguarding assets.To promote reliable financial reporting.To foster compliance with applicable laws and regulations.10Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Internal Control SystemInternal control over cash:require daily deposits.make all payments by cheque.promptly reconcile bank statements.11Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBank StatementsShows the beginning bank balance, deposits made, cheques paid, other debits and credits during the month, and the ending bank balance. 12Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBank Reconciliation Timing differences, where bank has recorded a transaction and entity is not aware of it yet or vice versa. Explains the differences between cash reported on bank statement and cash balance in entity’s accounting records.13Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBank ReconciliationBalance per bank statement+ Deposits in transit- Outstanding cheques± Bank errors= Adjusted balance Indicated balance+ Deposits by bank (e.g. interest earned)- Service charge - NSF cheques± Book errors= Adjusted balance14Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBank Reconciliation Indicated balance+ Deposits by bank (e.g. interest earned)- Service charge - NSF cheques± Book errors= Adjusted balanceAll reconciling items on the book side require an adjusting entry to the cash account.15Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynShort-term Marketable Securities Reported on balance sheet at cost which is usually close to market value. Interest on securities accrued as earned to accurately reflect financial position at end of period and results for period.16Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAccounts Receivable Amounts due from customers for merchandise and services delivered. May be different from original amount recorded due to:bad debts cash discounts.17Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAccounts Receivable – Bad debts If a company makes credit sales to customers, some accounts inevitably will turn out to be uncollectible.18Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAccounts Receivable – Bad debts At the end of each period, record an estimate (bad debts expense) of the uncollectible accounts. There are two ways to make this estimate: - Based on the collectibility of all credit sales for the period (percentage of sales method). - Based on an estimate of the accounts receivable to be collected (aging of receivables method).Exhibit 4-2 page 12219Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAccounts Receivable – Bad debtsWhen the estimate is made, a valuation adjustment can be recorded to reduce the carrying value of the asset and recognise the bad debt expense.20Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAccounts Receivable – Bad debtsThe net accounts receivable is the amount the business expects to collect.Balance sheet disclosure:This is a contra asset account21Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAccounts Receivable – Cash Discounts Cash discounts; A deduction (up to 2%) from the invoice price granted to encourage prompt payment of the amount due.2/10,n/30Discount period (days)Otherwise, net (or all) is due CreditperiodDiscountper cent Credit terms22Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynInventories Purchased OR Manufactured. Goods ownedand held for sale to customers. Includes freight and material handling charges. Carried in the asset account until sold. 23Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynInventoriesInventoryCost of goods soldSALE24Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynWe use one of these inventory valuation methods to determine cost of inventory sold.Inventory Cost-flow Assumptions Specific identification Weighted-average FIFO LIFO (NOT ALLOWED IN AUSTRALIA)25Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn SPECIFIC IDENTIFICATION When a unitis sold, the specific cost of the unit sold is added to cost of goods sold. Suitable for specifically identifiable products but not where there is a large number of inventory items which are not easily identified individually.Inventory Cost-flow Assumptions26Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCost of goods available for sale during the yearUnits available for sale during the year÷WEIGHTED-AVERAGEInventory Cost-flow AssumptionsCalculate the average cost of the items in beginning inventory plus purchases made during the year.27Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCOGSOldest costsEnding inventoryRecent costsInventory Cost-flow AssumptionsFIRST-IN, FIRST-OUT (FIFO)First costs in to inventory are the first costs out to Cost of goods sold. 28Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynInventory Cost-flow AssumptionsMethod of valuing inventory may have significant effects on: Income statement; cost of goods sold, operating result. Balance sheet; current assets, retained earnings.29Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynInventory Accounting System AlternativesPeriodic Inventory SystemCost of goods sold is determined at year end.Perpetual Inventory SystemCost of goods sold is determined each time inventory is sold.30Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynInventory Accounting System Alternatives Periodic Inventory System; Inventory is counted at period end and the cost determined using chosen assumption. Perpetual Inventory System; Record is made of every purchase and every sale, and a continuous record of the quantity and cost of inventory is maintained.31Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynInventory AccountsRetail Firm InventoryManufacturing Firm Finished Goods Inventory Raw Materials Inventory Work in Process Inventory32Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynInventory Errors Errors in the amount of ending inventory have a direct dollar-for-dollar affect on cost of goods sold and net profit. For this reason, independent auditors, income tax auditors and financial analysts look closely at reported inventory amounts.33Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBalance Sheet ValuationAustralian accounting standards specify that inventory must be carried on the Balance Sheet at the lower of cost or market value.Market value: estimated proceeds of sale less any further costs necessary to get the inventory ready for sale.Any write-down is reported in the accounting period in which the decline occurs.34Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynPrepaid Expenses Expenses that have been paid in the current financial period but that will not be subtracted from revenue until a subsequent financial period. Opposite to accruals e.g. insurance, rent, office supplies, advertising.35Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynPrepaid Expenses- Deferred costs Expenses that have been paid in the current financial period but that will not be subtracted from income until a subsequent financial period i.e. paid for in advance of using. Opposite to accruals (bring to account on credit) e.g. insurance, rent, office supplies, advertising.36Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn