6.1: Overview
Cash and receivables are financial assets . Specifically, cash, cash equivalents, accounts receivable, and notes receivable are all considered to be financial assets because they are either:
- Cash
- A contractual right to receive cash or another financial asset, from another entity (such as accounts and notes receivable).
A financial asset derives its value because of a contractual right , or a claim for a determinable amount . The physical paper that cash or receivables are printed on has no value by itself. Their real value is based on what they represent. For example, financial assets such as cash include foreign currencies because their value in Canadian dollars is determinable by applying the current exchange rate. Receivables result from the sale of goods and services on credit or through lendings, for which the amount has been fixed or known (determinable) at the time of the transaction. In contrast, the cash value is not known in advance for non-financial assets such as inventories and fixed assets because their cash value will depend on future market conditions.
Cash and receivables are also monetary assets because they represent a claim to cash where the amount is fixed by contract .