Chapter-12-Cash-and-Marketable-Securities.ppt

Click to edit Master title style,Click to edit Master text styles,Second Level,Third Level,12-,*,Cash and Marketable Securities,CHAPTER 12,Learning objectives,1.Understand the definition of cash,and cash flow.,2.Get a general idea of the pricing methods of marketable securities.,What is Cash?,Coins,Currency,Money orders received from customers,Checks,Money deposited in banks,Compensating balance,In order to ensure a companys credit-granting arrangement,a company is forced to keep a minimum amount in the bank account.The minimum is called,compensating balance,.,Application of Cash,Account receivable,Inventory,Property,Suppliers,Employees,Rents,cash,Convert,Cant,pay,Cash and profit,Cash,Profit,Cash inflow&outflow,customers,lenders,investors,salaries,suppliers,creditors,out,in,out,out,in,in,Positive and negative cash flow,A positive cash flow,Inflow of cash outflow of cash,A negative cash flow,Inflow of cash outflow of cash,Components of cash flow,Cash,flow,Operating cash flow,Internal operations,Investing cash flow,Internal non-operating activities,Financing cash flow,To and from external,sources,Marketable securities are government securities,bonds,or other securities which are invested by a company to avoid the excess cash lie idle.,They are,liquid,assets in that they can easily and quickly be converted into cash.,Marketable securities held as a temporary investment are classified as current assets.,Marketable securities(Short-term investment),Marketable securities(Short-term investment),1.,have definite market value and be exchanged on the security market publicly;,As short-term investment,marketable securities,should,:,2.,as surplus funds,have,liquidity and profitability.,Classification of marketable securities,Credit securities,Equity securities,Mixed securities,Credit securities,indicate the credit that is owned,by the investors,namely,the claim to the principal,and interest on maturity date.,Classification of marketable securities,Equity securities,show the equity that the owner,owns,namely,the claim to the increment of capital.,Mixed securities,have all the characteristics that,Credit and equity securities have.The examples of,mixed securities are preferred stocks and transferable,debenture.,Pricing Methods of Marketable Securities,Value of securities investment at the beginning of,accounting period,If marketable securities are purchased with cash,the investment cost includes,purchase price,taxes,and,commission charges,.,The investment cost doesnt,consist of the cash dividend,declared but not collected and,the uncollected mature security,interest.,Pricing Methods of Marketable Securities,If marketable securities are invested by the investors,the cost is the price determined by the individual,investing parties.,If the securities are the non-cash assets paid by the,debtors,the investment cost includes,the,book value of the assets,and,taxes,excluding the cash dividend,declared but not collected,.,Pricing Methods of Marketable Securities,Value of securities at the end of accounting period,Marketable Securities are first recorded at cost.,The cost of marketable securities includes,purchase,price,brokers fee,and,other reasonable charge,incurred during the purchase of securities.,Method 1,Pricing Methods of Marketable Securities,To use the marketable value,as the price and record the,investment income as the,result of change of the,marketable value.,Method 2,Pricing Methods of Marketable Securities,To use the smaller one of,the cost and the marketable,price as the investment,cost of securities to meet,the prudence principle.,Method 3,Entry of marketable securities,Now,lets look at an example of,Stevs Barber Shop,Entry of marketable securities,Stevs Barber Shop,U.S.Treasury bills,$10,000.,The commission charge is$200.,Mature in three months at$15,000,Entry of marketable securities,June 1,Dr.Marketable Securities$10,200,Cr.Cash$10,200,The entries,Entry of marketable securities,Suppose the securities purchased by Stev include,cash dividend declared but not collected$400.,The entries,June 1 Dr.Marketable Securities$10,200,Interest Receivable 400,Cr.Cash$10,600,Entry of marketable securities,Interest income,Income on marketable securities,(short-term investments),Recorded,Received,Dividends and interest on,stocks and bonds held,as short-term investments,Recorded,Dividend,income,When is collected,Entry of marketable securities,The entries,September 1 Dr.Cash$15,000,Cr.Interest Income$3,000,Marketable Securities 12,000,WE ARE SAILING RIGHT ALONG!,