II. Accounting for Assets
III. The Present and Future Value of Money
VI. Related Booklets
II. Accounting for Assets Links provide added explanation. Read, if necessary, upon completing this Part I.
A. Cash and Short-Term Investments
1. When a number of people are responsible for purchasing, vouchers and other financial controls are
used to protect from wastes, fraud, and insure accurate financials.
2. Cash equivalents are highly liquid assets that mature within 90 days meaning little interest rate risk,
and include T. Bills, short-term commercial paper, and money markets funds.
B. Accounts Receivable
1. Selling on credit increases sales and customer defaults normally result in few bad debt expenses.
2. If sales are small and collected quickly, bad debts may be written off directly when collection fails.
Otherwise, an allowance is estimated, charged to expense, and lowered when appropriate.
3. Bad debts may be estimated as a percentage of credit sales, a percentage of current receivables,
or receivables may be aged with older receivables estimated to have a higher failure rate.
1. Items purchased, marked up, and stored for later sale may be inventoried to Goods Available for Sale.
An end of period inventory is subtracted leaving Cost of Good Sold.
2. Periodic Inventory has costing at the end of a period, while a perpetual inventory has costing continually.
3. Income Statement and Balance Sheet amounts are affected differently so wanting low taxes would mean
a different method than wanting high asset valuations. IRS frowns on changing methods.
D. Plant and Equipment
1. Long lasting assets not intended for resale have a value equal to cost, transportation, instillation,
and cost to get running properly.
2. Cost is recovered through the process of depreciation in that cost per unit or time period is
calculated by dividing cost minus salvage by units or years.
3. Accelerated depreciation delays taxes and is allowed to encourage capital investment which
leads to economic growth.
4. Sale of plant assets above or below book value (Cost - Accumulated Depreciated) results in
a gain or loss which is not part of operating income.
E. Natural Resources and Intangibles
1. Wasting assets from the earth are long term assets valued at cost plus development cost and
cost is recovered through depletion.
2. Intangibles are nonphysical, concurrent, and their purchase and development cost is recovered
F. Those who want a debits and credits explanation should see: Accounting for Assets