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Olin Company currently makes only cash sales.Given the number of potential customers who have requested to buy on credit，Olin Company is considering allowing credit sales.What factors should Olin Company consider in deciding whether to allow credit sales？Many companies are changing to the LIFO method to save taxes in the current years while most countries around the world do not allow use of the LIFO method.Should Olin Company make a change to LIFO method？What factors should be considered？
In most countries，non-current assets and current assets are presented as separate headings in the statement of financial position.An asset should be classified as a current asset when：
●It is expected to be realized in or is held for sale or consumption in the normal course of the enterprise's operating cycle；or
●It is held primarily for trading purposes or for the short-term and expected to be realized within 12 months of the reporting date；or
●It is cash or cash equivalent asset which is not restricted in its use.
The main items of current assets are cash，current receivables and inventories.
Cash is the most liquid asset and consists of those items that serve as a medium of exchange and provide a basis for accounting measurement.Cash comprises cash on hand and demand deposits.That is coin and currency on hand and unrestricted funds available on deposit in a bank.Petty cash funds are also items commonly reported as cash.Some items like postage stamps，postdated checks，IOUs should not be reported as cash.A credit balance in the cash account resulting from the issuance of checks in excess of the amount on deposit is known as a cash overdraft and should be reported as a current liability.
In addition，many companies report investments in very short-term and interest-earning securities as cash equivalents.Cash equivalents are short-term，highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.They are not held for investment or other long-term purposes，but rather to meet short-term cash commitments.An investment's maturity date should normally be three months from its acquisition date.Therefore，equity investments（i.e.shares in other companies）are not cash equivalents.An exception would be where redeemable preference shares were acquired with a very close redemption date.
Because cash is the most liquid asset，it is particularly susceptible to theft or fraud unless properly safeguarded.In general，systems of cash control deny access to the accounting records to those who handle cash.This reduces the possibility of improper entries to conceal the misuse of cash receipts and cash payments.Cash payments should never be made out of cash receipts.Payments should be made by check with the exception for small ones from petty cash fund.
In recording the establishment of petty cash fund，petty cash is debited and cash is credited.The cash is then turned over to some person who is solely responsible for payments made out of the fund.Whenever the amount of cash in the fund runs low and also at the end of each accounting period，the fund is replenished by writing a check equal to the payments made.In recording replenishment，expenses and other proper accounts are debited for payments from petty cash and cash is credited.When the fund fails to balance，an adjustment is usually made to“Cash Short and Over”account.Unless theft is involved，this will usually involve only a nominal amount arising from errors in making changes.
A bank reconciliation is a comparison of a bank statement（sent monthly，weekly or even daily by the bank）with the cash book（the record of how much a company believes that it has in the bank）.Differences between the balance on the bank statement and the balance in the cash book will be errors or timing differences and they should be identified and satisfactorily explained.Several common types of differences arise in the following situations.
●Deposit in transit.A deposit made near the end of the month and recorded on the cash book is not received by the bank in time to be reflected on the bank statement.
●Outstanding checks.Checks written near the end of the month have reduced the cash balance in the cash book but have not cleared by the bank as of the bank statement date.
●Bank service charges or bank interest.The bank might deduct charges for interest on an overdraft or for its services and note the amount on the bank statement.
●Deposits made directly by the bank.A bank often acts as a collection agency for its customers on items such as notes receivable.
In preparing a bank reconciliation，it is a good practice to begin with the balance shown by the bank statement and end with the balance shown by the cash book.It is this corrected cash book balance that will appear in the statement of financial position as “cash at bank”.
In classifying receivables，an important distinction is made between trade receivables and other receivables.Trade receivables，generally the most significant category of receivables，result from the normal operating activities of a company，that is，credit sales of goods or services to customers.Trade receivables may be evidenced by a formal written promise to pay and classified as notes receivables.Other or non-trade receivables are due from anyone else owing money to the company.They arise from a variety of transactions，such as dividends and interest receivables and deposits to guarantee contract performance.
Another way of classifying receivables relates to the current versus non-current nature of receivables.For classification purposes，all trade receivables are considered current receivables while other receivables require separate analysis to determine whether they can be collected within one year or an operating cycle，whichever is longer.
A bad debt is a debt which is not expected to be paid.Customers who buy goods on credit might fail to pay for them perhaps out of dishonesty or because they have gone bankrupt and cannot pay.Because of the risks involved in selling goods on credit，it might be accepted that a certain percentage of outstanding debts at any time are unlikely to be collected.An allowance for doubtful accounts is just the estimate of the percentage of debts which are not expected to be paid.
The value of trade receivables in the statement of financial position must be shown after deducting the allowance for doubtful accounts.This is because the net realizable value of all the receivables of the company is estimated to be less than their sales value.Such an allowance for doubtful accounts is an example of the prudence concept.
When an allowance is first made，the amount of this initial allowance is charged as an expense in the income statement for the period in which the allowance is created.When an allowance already exists but is subsequently increased in size，the amount of the increase in allowance is charged as an expense in the related income statement.However，when an allowance is subsequently reduced in size，the amount of the decrease in allowance is recorded as an item of income in the income statement for the period in which the reduction in allowance is made.
The estimate for bad debts may be based on sales for the period or the amount of trade receivables outstanding at the end of the period.When a sales basis is used，the amount of bad debts in past years relative to total sales（or net credit sales）provides a percentage of estimated bad debts.For example，if2% of sales are considered doubtful in terms of collection and sales for the period are $ 100 000，the charge for bad debts expense would be 2% of the current period's sales，i.e. $ 2 000.In practice，companies may base their estimates on a percentage of total trade receivables outstanding.This method emphasizes the relation between the trade receivables and the allowance for doubtful accounts balances.For example，if total trade receivables are $ 50 000 and it is estimated that 3% of those accounts will be uncollectible，then the allowance account should have a balance of $ 1 500.The most commonly used method for establishing an allowance based on outstanding receivables involves aging receivables.Individual accounts are analyzed to determine those not yet due and those past due.Past-due accounts are classified in terms of the length of the period past due.A series of estimated loss percentages can be developed and applied to the different receivables classifications.The aging method brings the allowance account to the required balance just with the previous method based on a percentage of total receivables outstanding.
Inventories are assets that are held for sale in the ordinary course of business in the process of production for such sale，or in the form of materials or supplies to be consumed in the production process or in the rendering of services.Inventories can include any of the following.
●Goods purchased and held for resale，e.g.goods held for sale by a retailer，or land and buildings held for resale by a real estate firm.
●Finished goods produced.
●Work in process being produced.
●Materials and supplies awaiting use in the production process（raw materials）.
A service company generally doesn't have a physical inventory that is material.However，it often has an inventory of services that it has provided but not yet billed.For example，a company that provides consulting services will pay its employees each period but may only bill its services when certain contract stages are reached.The company has an inventory of “unbilled services provided”.
A company may account for inventory quantities and costs using the perpetual inventory system or the periodic inventory system.
Under perpetual inventory system，a continuous record of physical quantities in inventory is maintained.It records the purchase，production and use of each item of inventory in detailed subsidiary records，although often only in units without including costs.It should take a physical count at least once a year to confirm the balance in the inventory account.Differences between physical count and inventory account balance resulting from errors in recording，waste and theft etc.should be adjusted whether to increase cost of sales or to recognize a loss.
Under periodic inventory system，it takes physical counts periodically without a continuous record of physical quantities or costs of inventory held.It is at the physical count that physical quantities on hand，quantities used or sold during the period will be determined.In the periodic inventory system，a company typically does not record the costs of acquisitions of inventory in an inventory account but in a temporary account which is called Purchases，while the opening inventory cost remains in inventory account.
Inventories should be measured at the lower of cost and net realizable value.There are three issues in the measurement of inventories.
●Initial measurement：which costs qualify to be included.
●Subsequent measurement：cost allocation between cost of sales and closing inventory.
●Subsequent measurement：avoiding overvaluation of inventories.
（1）Initial measurement：which costs qualify to be included.
The cost of inventory includes costs directly or indirectly incurred in bringing an item to its present condition and location.The cost of purchased inventory should include purchase price（net of trade discounts，rebates and other similar amounts）plus any other cost directly attributable to acquisition，such as import duties and other taxes，transport，handling，insurance and similar costs.When a company manufactures inventory，costs of inventory consist of two main parts：①costs directly related to the units of production（e.g.direct materials，direct labor）；②fixed and variable production overheads that are incurred in converting materials into finished goods，allocated on a systematic basis.Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production，e.g.machinery depreciation，cost of factory management and administration.Variable production overheads are those indirect costs of production that vary directly or nearly directly with the volume of production，e.g.indirect materials and labor（overtime premium）.Any other costs should only be recognized if they are incurred in bringing the inventories to their present condition and location.Under IAS 2，some types of cost would not be included in the cost of inventories.Instead they should be recognized as an expense in the period they are incurred，for example，abnormal amounts of wasted materials，labor or other production costs，storage costs（except costs which are necessary in the production process before a further production stage），administrative overheads not incurred in bringing inventories to their present condition and location and selling costs.
（2）Subsequent measurement：cost allocation between cost of sales and closing inventory.
For financial statement reporting purposes，a company must attach costs to inventory items.The cost of opening inventory is the beginning balance in inventory account.Such cost plus the cost of purchases or production（discussed earlier）is allocated between cost of sales（or issues of materials）and closing inventory by means of a cost flow assumption . The major cost flow assumptions currently used are specific identification；first-in，first-out（FIFO）；average cost；and last-in，first-out（LIFO）.Different cost flow assumptions will provide different profit figures.When preparing financial statements，FIFO or average cost is normally expected to use.IAS 2 does not permit the use of LIFO.However，all of the four cost flow assumptions should be known for differences between them.
●Specific identification.Specific costs should be attributed to individual items of inventory when they are segregated for a specific project，but not where inventories consist of a large number of interchangeable（i.e.identical or very similar）items.In the latter circumstances，one of two approaches（i.e.FIFO or average cost）may be taken.
●FIFO.This assumption assumes that materials are issued out of inventory in the order in which they were delivered into inventory，i.e.issues are priced at the cost of the earliest delivery remaining in inventory.
●Average cost.As purchase prices change with each new batch，the average price of inventories is constantly changing.A weighted average price for all units in inventory is calculated.Issues are priced at this average cost and the balance of inventory remaining would have the same unit valuation.A new weighted average price is calculated whenever a new delivery of materials into store is received.Therefore，a recalculation can be made after each purchase（moving or cumulative weighted average）or alternatively only at the end of the period.
●LIFO.This assumption assumes that materials are issued out of inventory in the reverse order to which they are delivered，i.e.most recent deliveries are issued before earlier ones and are priced accordingly.
There are two techniques mentioned by IAS 2 to measure inventory cost and both of them may be used for convenience.
●Standard costs are set up to take account of normal production values involving amount of raw materials used，labor time etc.They are reviewed and revised on a regular basis.
●Retail method is often used in retail industry where there is a large turnover of inventory items，which have similar profit margins.The only practical method of inventory valuation may be to take the total selling price of inventories and deduct an overall average profit margin，thus reducing the value to an approximation of cost.The percentage will take account of reduced price lines with different percentage for different department.
（3）Subsequent measurement：avoiding overvaluation of inventories.
As a general rule，assets should not be carried at amounts greater than those expected to be realized from their sale or use.In the case of inventories，this amount could fall below cost when items are damaged or become obsolete，or where the costs to completion have increased in order to make the sale.IAS 2 governs the accounting treatment of inventory，i.e.inventories should be valued at cost，or if lower，net realizable value.Therefore，historical cost is the normal basis of inventory valuation.The only time when historical cost is not used is in the exceptional cases where the prudence concept requires a lower value to be used.
Inventories might be valued at their expected selling price，less any costs still to be incurred in getting them ready for sale and then selling them.This amount is referred to as the net realiz-able value（NRV） of the inventories.NRV is likely to be less than cost in the following situations：
●an increase in costs or a fall in selling price；
●a physical deterioration in the condition of inventory；
●obsolescence of products；
●a decision as part of the company's marketing strategy to manufacture and sell products at a loss.
The reason why inventory is held must be taken into account.Some inventories may be held to satisfy a firm contract and their NRV will therefore be the contract price.Any additional inventory of the same type held at the period end will be assessed according to general sales prices when NRV is estimated.Comparison of cost and NRV normally is performed on an item by item basis but similar or related items may be grouped together.This grouping together is acceptable for items in the same product line but it is not acceptable to write down inventories to NRV based on a whole classification（e.g.finished goods）or a whole company.At the end of each period，NRV must be reassessed and compared again with cost.If the NRV has risen for inventories held over the end of more than one period，then the previous write-down must be reversed to the extent that the inventory is then valued at the lower of cost and the new NRV.This may be possible when selling prices have fallen in the past and then risen again.
administrative overhead 管理间接成本
aging receivable 应收账款账龄分析
allowance for doubtful accounts 坏账准备
average cost 平均成本法
bad debt 坏账
bank reconciliation 银行存款余额调节表
bank statement 银行对账单
cash book 现金账簿
cash equivalents 现金等价物
cash on hand 库存现金
cash short and over 现金尾差，现金短溢
cost flow assumption 成本流转假设
count 盘存，盘点
demand deposit 活期存款
deposit in transit 在途存款
deposit to guarantee contract performance 合同履行保证金
direct labor 直接人工
direct material 直接材料
dividends receivable 应收股利
equity investment 权益投资
finished goods 产成品
first-in，first-out（FIFO） 先进先出法
fixed production overhead 固定制造费用
import duty 进口税
interest receivable 应收利息
International Accounting Standard 2—Inventories（IAS 2） 《国际会计准则第2号——存货》
IOU（I Owe You） 借据
last-in，first-out（LIFO） 后进先出法
lower of cost and net realizable value 成本与可变现净值孰低
maturity date 到期日
moving or cumulative weighted average 移动加权平均值
net realizable value 可变现净值
notes receivable 应收票据
overdraft 透支
overtime premium 加班津贴
past due 过期
periodic inventory system 定期盘存制
perpetual inventory system 永续盘存制
petty cash fund 备用金
prudence concept 谨慎性原则
raw material 原材料
rebate 回扣
redeemable preference shares 可赎回优先股
retail method 零售法
reverse 转回
selling cost 销售费用
specific identification 个别认定法
standard cost 标准成本
subsidiary record 明细记录
supplies 物料，价值较低的材料、工具，也指文具、纸张等办公用品
trade discount 商业折扣
trade receivable 应收账款，有时也称accounts receivable
variable production overhead 变动制造费用
work in process 在产品
write down 减记
根据《国际财务报告准则第9号——金融工具》（International Financial Reporting Standards 9—Financial instruments，IFRS 9），现金与应收账款均归属于金融资产。进入电子支付时代后，比特币和以太坊为代表的加密数字货币可以在线上通过区块链技术购买商品或服务。但与传统货币不同，加密数字货币不依靠法定货币机构发行，不受中央银行管控，价值波动剧烈，不能被视为现金等价物。加密数字货币也不代表交付或接收现金或其他金融工具的权利或义务的合同，因而不满足金融资产的定义。虽然目前没有专门针对加密数字货币的会计准则，但考虑到加密数字货币的特点，可以适用无形资产会计准则。此外，持有加密数字货币并打算在近期出售的经纪交易商可以将加密数字货币视为存货。
应收账款控制与融资
应收账款控制与融资在为新客户或现有客户制定信用额度前应对企业客户进行评价，通常可以利用“5C”系统进行。“5C”即评估客户信用特征的5个方面，包括品质（character）、能力（capacity）、资本（capital）、抵押（collateral）和条件（conditions）。品质：客户的信誉，即履行偿债义务的可能性，企业必须设法了解客户的历史付款记录，了解是否有拖欠款项的不良记录。能力：客户的偿债能力，包括流动资产的数量和质量以及与流动负债的比例。观察客户的经济状况，尤其关注客户的现金流状况，看其是否有足够的现金支付能力。资本：客户的财务状况和支付能力。通过客户的审计报告、会议纪要等，洞察报表数字背后的隐含因素，调查是否有被抵押和冻结的资产。抵押：客户拒付欠款或无力偿债时能被用作抵押的资产的数量和质量。条件：可能影响客户付款能力的经济环境。了解社会中介机构对客户的评价，调查客户所在行业的发展趋势和变化政策。根据以上5项特性，给客户划定不同的等级，不同的等级给予不同的授信额度。
应收账款保理业务（factoring）是一种金融业务：企业把由于赊销而形成的应收账款有条件地转让给保理商（如银行），保理商为企业提供资金，并负责管理、催收应收账款和坏账担保等业务，企业可借此收回账款，加快资金周转。随着互联网技术的发展，基于核心企业的上下游企业进行投融资活动的供应链金融快速发展。应收账款保理业务中保理商的风险评估依据核心企业的信用评级，而不是评估供应商的风险等级，由买家（核心企业）推荐符合保理准入条件的供应商及应收账款信息，保理商对以核心企业作为付款人的应收账款或订单，直接发放用于融资的款项，帮助受到新冠疫情影响的供应链中的中小民营企业利用核心企业的信用获得融资支持。基于大数据、区块链、人工智能等应用，应收账款保理业务还可以优化上下游企业授信，提升企业资质和还款能力评估，消除交易背景真实性审查的潜在风险，助力提升供应链金融业务的安全性和有效性。
资产证券化
资产证券化是资产发起人将缺乏流动性但可预见未来现金流入的资产进行组合，构造和转变成资本市场可销售和流通的金融产品的过程。应收账款证券化的运作方式是先将达到一定金额的若干小额债权集中，交由信托投资机构之类的特殊目的公司（special purpose vehicle，SPV）保管，然后评估等级并由保管者代为发行证券。证券出售后有关旧债权本息的收取、提前偿还的手续、余款的再投资以及新债务的还本付息等，一律由中介机构承办。
1.Describe the methods for establishing and maintaining an allowance for doubtful accounts.
2.In accounting for uncollectible accounts receivable，why is the allowance method，rather than the direct write-off method，required by IFRS？
3.Why is cash on hand both necessary and yet potentially unproductive？
4.Give at least four common sources of differences between the balance on the bank statement and the balance in the cash book.
5.What are the major advantages in using petty cash funds？
6.finished goods inventory is composed primarily of automobiles. Are automobiles always classified as “inventory” on the statements of financial position of all companies？Explain.
7.Which better matches the normal physical flow of goods—FIFO or LIFO？Which better matches current costs and current revenues？
8.Why are LIFO and average cost more complicated with a perpetual inventory system than with a periodic inventory system？
9.What differences result from applying lower of cost or net realizable value to individual inventory items instead of to the inventory as a whole？
10.Suppose a company has four items of inventory on hand at the end of its accounting period. Their cost and NRVs are as follows.
Determine the value of inventory on the statement of financial position.
11.What amount will be included in “cash and cash equivalents”？
12.Philip Corp reported credit sales of $ 240 000 and write-offs of bad debts of $ 57 000 for last year. Accounts receivable had a balance of $ 1 127 000 at the beginning of the year and $ 881 000 at the end of the year. How much cash was collected from customers during the year？
13.Lee Limited began operations on January 1，20×1. The following data relate to the company's first 2 years in business.
What is the correct cost of goods sold for 20×2？
14.Explain how a manufacturing company can manipulate earnings by including non-production costs in inventories.
Exercise 1
Accounts receivable of Magily Company on December 31，20×2，had a balance of $ 300 000.Allowance for Doubtful Accounts had a $ 4 200 debit balance. Sales in 20×2 were $ 1 690 000 less sales discounts of $ 14 000.
Instructions
Give the adjusting entry for estimated Bad Debt Expense under the following independent assumptions.
1.Of 20×2 net sales，1.5% will probably never be collected.
2.Of outstanding accounts receivable，3% are doubtful.
3.An aging schedule shows that $ 11 000 of the outstanding accounts receivable are doubtful.
Exercise 2
The accounting department supplied the following data in recording the September 30 bank statement for Rytton，Inc.
A sale and deposit of $ 1 729.00 was entered in the sales journal and cash receipts journal as $ 1 792.00.
Instructions
Prepare the September 30 bank reconciliation.
Exercise 3
Pomegranite Company's bank balance on its October 31，20×2 bank statement was $ 11 500. Pomegranite's accountant was preparing a bank reconciliation and determined that three checks issued by Pomegranite to its suppliers for a total of $ 6 500 had not yet cleared by the bank. Also，a deposit of $ 700 made by Pomegranite on October 31 did not appear on the bank statement. Bank service charges of $ 240 appear on the bank statement，but have not yet been recorded in the cash book.
Instructions
Given the above information，prepare a bank reconciliation to determine the correct cash balance that should be reflected in Pomegranite's cash book at October 31，20×2.
Exercise 4
The Web Store shows the following information relating to one of its products.
Instructions
Determine the values of closing inventory under a periodic inventory system assuming the following methods.（Round unit cost to 3 decimal places.）
1.FIFO.
2.LIFO.
3.Average cost flow.
Exercise 5
Richy Corporation had the following transactions relating to Product A during September.
Instructions
Determine the closing inventory value under a perpetual inventory system with each of the following costing methods.
1.FIFO.
2.LIFO.
Exercise 6
The following figures relate to inventory held at the year end.
Instructions
Determine the value of inventory held on the statement of financial position.