Intermediate Accounting, 15th Edition

CHAPTER 7 Cash and Receivables

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Identify items considered cash.
2. Indicate how to report cash and related items.
3. Define receivables and identify the different types of receivables.
4. Explain accounting issues related to recognition of accounts receivable.
5. Explain accounting issues related to valuation of accounts receivable.
6. Explain accounting issues related to recognition and valuation of notes receivable.
7. Explain the fair value option.
8. Explain accounting issues related to disposition of accounts and notes receivable.
9. Describe how to report and analyze receivables.

Please Release Me?

In recent quarters, several U.S. banks have reported increases in net income compared to the same quarter in the previous year. How did the market greet this news? With a resounding “blah.” For example, Wells Fargo's report led to a share price decline of 8.4 percent, and Citigroup saw a 1.7 percent drop in its share price when it announced earnings. What gives?

It seems that the source of earnings increase matters to the market. And in the case of banks, a significant portion of recent earnings increases are the result of decreases in the banks' bad debt expense, not increased revenues on loans and investments. These decreases happen when the banks' reserves that have accumulated in the allowance for loan losses are judged to be too high. How big is the effect? As shown in the chart below, in a recent quarter, of the $14.3 billion ...