7.3 Bank Accounts Flashcards
why do companies use banks
because this minimizes amount of cash that must be kept on hand, and bank statements provide a second record of cash transactions!
when do companies use online banking
-to authorize employees to monitor account balances/transaction
-transfer funds
-make online payments
-deposit heques
-view acct details
-download transactions into accounting software (for bank reconciliation)
what is shown on a bank statement
-transcctions for th emonth
-account balance at month end
WHAT IS THE ABSOLUTELY MOST CRITICAL THING???? IN BANK STATEMENTs?
Cash is a normal debit balance for a company
FOR A BANK, CASH DEPOSITED IS A LIABILITY!!!!! SO NORMAL CREDIT BALANCE!!!
IN A BANK ACCOUNT FROM A BANKS PERSPECTIVE, CASH DEPOSITED IS A DR OR CR?
CR (cUZ INCREASE IN LIABILITY)
IN A BANK ACCOUNT FROM A BANKS PERSPECTIVE, CASH WITHDRAWN IS A DR OR CR?
DR!!!! because decrease in liability
If transaction is deducted from bank acc, on bank statement DR or CR
DR
If transactions were added to bank account, Dr or CR
CR liability
if a company makes na electronic payment or writes a cheque, the bank is paying out this amount
how is it recorded (Dr or cr)
DR
if a company is recieving electronic colletcion or deposit money into its bank acc, how is it shown in bank statment
CR
What are amounts deducated from a bank account
DEBITED
Examples of all amounts deducted from a bank account (debited accounts)
4 types
1) EFT payments: deposit payments to employee salaries or to recurring payments (insurance rent loan etc)
2) Cheques: written order signed by an employee that tells bank to pay a aspecific amount to a payee
3) NSF cheques: non sufficient funds cheque, customer cheque that has been deposited but RETURNED by the bank
4) service fees: service fees charged for transactions processed using debit and bank credit cards
what are nsf cheques
when a customer signs a cheque to the company but they do not have neough money to pay the cheque “the cheque has bounced”
the company credits cash because it decreased and the bank debits the amount
What are amounts added to a bank account (Credits)
1) EFT deposits
2) deposits made at the bank
3) interest: any money earned on the money in the account
4) other transfers: amounts recieved by the company from operating lines of credit and funds recieved from any new bank loans taken out
how can a bank reccord and company record disagree:
1) timing differences
2)errors
how can timing differences make discrepancy between bank and company records
->outstanding cheques
->depsotis in transit
how can errors make differences in bank vs company records
company errors occur depending on the quality of internal controls; bank erorrs are rare
outstanding cheques meaning
cheques issued (Written and distributed) and recorded by a company that have not yet been paid(cleared) by the bank
deposits in transit meaning
amounts deposited at a bank and recroded by the depositor, that have NOT been recorded by the bank
who should perform bank reconciliations
an employee who has no other relations to cash
what are the 2 sections of a bank reconciliation?
1) bank statement balance
2) book balance
Steps in preparing the reconciliation
1) determine the month end cash balance per bank (on bank statement) and the month-end cash balance per books (in the Cash account of General Ledger)
2)identify the reconicling items and how each affects either the bank or the company
3) calculate the reconiciled cash balance
IN DEPTH steps of bank reconciliation procedures:
1) Find cash balance per bank statement
-add deposits in transit
-subtract outstanding cheques
-add/sub any errors
2) Find cash balance per books
- add unrecorded EFT collections, interest, and other deposits
-subtract NSF cheques
-subtract unrecorded EFT payments, service charges
-add/sub any errors
3)should be same amount
Reconciling cash balance per bank
-deposits in transit STEPS
STEPS:
1) compare each individual deposit on the bank statement with THE DEPOSITS IN TRANSIT FROM LAST BANK RECON and DEPOSITS RECORDED IN COMPANYS BOOKS
2) any deposits that are not in bank statement are deposits in transit (Recorded in companys books but not by bank yet)
3)add these to the banks cash amount
