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Habtamu Mengie
Jun 16

Recognition of cash and receivables?

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Jun 16
Recognition of cash and receivables refers to the process of recording and reporting these assets in a company's financial statements in accordance with generally accepted accounting principles (GAAP). Cash is typically recognized when it is received or disbursed, while receivables are recognized when they are earned or incurred.

Cash is usually recorded at its face value, while receivables are recorded at their estimated net realizable value, which takes into account any potential bad debts or discounts. Both cash and receivables are typically classified as current assets on the balance sheet, as they are expected to be converted into cash within a year.

Proper recognition of cash and receivables is important for accurately reflecting a company's financial position and performance. Failure to recognize these assets correctly can result in misleading financial statements and potential legal or regulatory issues.
Google Gemini AI
Jun 16
Recognition of Cash

- Initial Recognition: Cash is initially recognized at its fair value, which is typically its face value.
- Subsequent Measurement: Cash is subsequently measured at its current value, which is also its face value.

Recognition of Receivables

- Initial Recognition: Receivables are initially recognized at their fair value, which is typically the amount of consideration received or receivable.
- Subsequent Measurement: Receivables are subsequently measured at their amortized cost, which takes into account any interest or discounts agreed upon.

Specific Recognition Criteria


- Cash is recognized when it is received or available for use by the entity.
- It includes currency, checks, and demand deposits.


- Receivables are recognized only when they are considered probable to be collected.
- They represent amounts owed to the entity by customers or other debtors.
- Factors considered for recognition include the customer's creditworthiness, the availability of collateral, and the terms of payment.

Estimation of Uncollectibility:

- For receivables, it is necessary to estimate the amount that may not be collected.
- An allowance for uncollectible accounts is established to reflect this estimate.
- The allowance is based on historical data, industry averages, or management's judgment.

Impairment of Receivables:

- If there is evidence of impairment (e.g., significant financial difficulty of the debtor), the receivable is written down to its net realizable value.
- Net realizable value is the amount that the entity expects to collect, net of any estimated costs to do so.

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