Discussion Questions & AnswersWeek 11: Cash is the most important of the three assets. While accounts receivable and inventory are also important everythin boils down to li!uidity" the orani#ation$s ability to !uickly access cash resources or turn assets into cash in order to support such functions as purchasin inventory and maintainin operations.% would think that each is susceptible to error" a simply put e&planation: human error' people make mistakes' overlook thins' etc. %n terms of fraud' % think that receivables would be the most susceptible to fraudulent activity. Consumers nowadays tend to try to et somethin for nothin and in such a process they attempt to rip o( businesses throuh counterfeit cash' stolen credit cards' fake checks' etc. A misstatement could adversely a(ect each asset' whether it be to overstate or understate. )o overstate cash funds could cause paychecks to bounce' *ust to name one a(ect it would have. )o understate cash funds could mean a decision to pass upan opportunity because it is believed that you do not have the funds +when in fact you do,. )o overstate receivables would be to overstate cash' make checks bounce' and %$m sure many other thins happen. )o overstate inventory' you may not be able to ful-ll all of your orders and that in itself could cause a lot of issues and e&trawork to correct. .i!uidity can be measured throuh a metric of an orani#ation$s workin capital. Workin capital is de-ned as current assets minus current liabilities. A positive position means that a company is able to support its operations +includin purchasin inventory,./ne of the metric$s shortcomins' however' is that current assets often cannot be li!uidated in the short term. 0ih workin capital positions often indicate that there is too much money tied up in accounts receivable and inventory' rather than short1term li!uidity.All orani#ations should focus on their level of workin capital. /rani#ations that improve their manaement of workin capital are able to free up cash and thus' for e&ample' can reduce their dependence on outside fundin or -nance additional rowth pro*ects.2:What are the di(erent ways to estimate bad debt3 0ow does this a(ect net income3 What does enerally accepted accountin principles re!uire3 Why3 4hould all companies have bad debt3 5&plain your answer.% actually found this bit of information to be interestin. )hrouh the allowance method % found two ways to estimate bad debt were either the income statement approach or the balance sheet approach. With the e&amples that % reviewed it illustrated how the balance sheet approach will base the allowance for doubtful accounts on a percentae' that percentae is applied to the accounts receivable balance at the end of the year. )he allowance method estimates bad debt as a percentae of sales for the period' this percentae is based on the company$s past e&perience' that percentae is applied to the total sales +or the total of accounts receivable for the year,. )he 6AA7 re!uires companies to use the allowance method' orani#ations that are not in compliance with the 6AA7 may use the direct write1o( method. % don$t know if all companies should have bad debt but it seems they all do eventually because consumers *ust are not as honest and forthriht as they should or used to be. Discussion Questions & AnswersWeek 21:What are the criteria for capitali#ation of -&ed assets3 What items are included in the cost of -&ed assets3 4hould interest be included in the cost of a -&ed asset3 5&plain why or why not.8i&ed assets are also known as capital assets and they can make up a lare part of acompany9s balance sheet" especially for manufacturers and other like businesses. :ecause the life of a -&ed assets can be many years' accountin for them correctly re!uires that they are capitali#ed and depreciated over time. :ecause it has a lon life' 6AA7 re!uires that it is capitali#ed as an asset on the balance sheet and the total cost brouht into e&penses over time. Another important criterion is that a -&ed asset is tanible. )he total cost of a -&ed asset to be capitali#ed is more than *ust the purchase cost. %nclude any non1recoverable sales ta&es or fees paid related to the purchase. Also include any costs to install the asset or make it ready for use. %think that interest should be included in the capitali#ation of a -&ed asset' as it is part of the total cost of the asset. +1, Ac!uisition of 5!uipment. )o be considered for capitali#ation' and thus sub*ectto depreciation' an asset must ful-ll three characteristics: 1, the asset must be ac!uired +i.e.' purchased' ift1in1kind, for use in operations' and not for investment or sale" 2, the asset +per individual unit, must have a useful life ofat least three years +two years for laptops, " and ;, the asset must have a cost value e&ceedin' at a minimum'