ENGM 401 & ENGM
620 Section X1
Fundamentals of
Engineering Finance
Fall 2010
Instructor: M.G. Lipsett,
Department of Mechanical Engineering,
Page 25, Paragraph 3.4, the third line from the bottom, "a payable is recorded"
should be " a receivable is recorded"
(Recall that when a sale is booked, two sets of transactions occur:
WIP (asset) goes down (credit) and COGS (expense) goes up (debit)
And
Revenue goes up (credit) and Receivables (asset) goes up debit.)
Page 25, Paragraph 3.4.1, the definition of bad debt is given as a payable that can not be collected.
The company that has the bad debt on its books has a receivable that it can’t act on, and so it has to have an artificial expense payable (called bad debt) to get the value off the books.
<Thank you to the student who pointed out these errors, for helping to improve the quality of the course and the instructional material.>
In Chapter 4 the text says that an asset is something that lasts longer than a year. This is not strictly accurate as written. This wording confuses fixed assets with assets. It is perfectly accurate for long term assets, often called fixed assets, but current assets are not expected to last longer than a year. Current assets are materials (inventory), cash in the bank, payments for which future value will be received, and money owing from customers, and all of these except cash are a means of time shifting expenses and revenues. Probably the best definition of an asset is something of value that you own. It can be broken into current and long-term assets, with the latter often being called fixed assets (although technically goodwill isn't a fixed asset - the language in finance is not always as precise as it could be).
Chapter 4 p. 88: the last paragraph incorrectly lists payables as a type of current asset; payables are liabilities.