Accounting CH5

Question 1

Do depreciation costs have an influence on cash flow?

Answer 1

No they do not

Question 2

proceeds

Answer 2

Einnahmen

Question 3

dr.

Answer 3

In accounting, dr. is the abbreviation for the word debit. (Today, accountants and bookkeepers use the term debit, but five centuries ago in Italy, the term included the letter “r”.)

Question 4

accounts receivables are also called

Answer 4

trade receivables, debtors, receivables

Question 5

What are receivables?

Answer 5

monetary claims against others

Question 6

accounts payable are also called

Answer 6

creditors or payables

Question 7

are shareholders’ equity, owner’s equity and equity the same?

Answer 7

Yes.

Question 8

What is a creditor?

Answer 8

the party to whom money is owed. The creditor is also called the lender.

Question 9

What is a Debtor?

Answer 9

The party that borrowed and owes money on the note. The debtor is also called the maker of the note or the borrower.

Question 10

What is Interest?

Answer 10

Interest is the cost of borrowing money

Question 11

Maturity date

Answer 11

The date on which the debtor must pay the note

Question 12

Maturity value

Answer 12

The sum of principal and interest on the note payable on maturity

Question 13

Principal

Answer 13

The amount of money borrowed by the debtor

Question 14

What is the Term?

Answer 14

The length of time from when the note was signed by the debtor to when the debtor must pay the note.

Question 15

Does the creditor have a note payable?

Answer 15

Yes.

The debtor has a note payable

Question 16

What is Impairment?

Answer 16

Impairment is an accounting principle that describes a permanent reduction in the value of a company’s asset, normally a fixed asset.

Question 17

What is a provision?

Answer 17

A business may know that a liability exists but not know its exact amount. The business must still report the liability on the Balance Sheet based on the best estimates possible on the reporting date. Estimated liabilities vary among businesses.

Question 18

What are defaults?

Answer 18

Generally, default refers to a company or individual who fails to make payments or interest payments on time.

Question 19

What is a write down?

Answer 19

A write-down is an accounting term for the reduction in the book value of assets whose fair market value has fallen below the book value, and thus become an impaired asset.

Question 20

What Is a Demand Deposit?

Answer 20

A demand deposit consists of funds held in an account from which deposited funds can be withdrawn at any time from the depository institution, such as a checking or savings account, accessible by a teller, ATM or online banking.

Question 21

Gross Cash

Answer 21

Gross cash represents all receipts acquired in business. It may also represent the total amount of income you make in your job. The latter is also referred to as “gross income.” However, gross cash may also refer to investment income in addition to income from wages, salary or business sales receipts. Regardless of the source, gross cash refers to the total amount of money that goes to you.

Question 22

Net Cash

Answer 22

Net cash is the amount of gross cash that remains after all deductions are taken. These deductions may include taxes, expenses in a business, retirement savings deductions, health insurance deductions from your paycheck or any other expenses deducted from your paycheck.

Question 23

Significance of Net Cash

Answer 23

Net cash represents disposable income or income left to pay other expenses you have. Net cash may also be used to invest or kept as savings. Businesses use net cash as a way to effectively measure the cost of doing business.

Question 24

Consideration

Answer 24

Consideration is a payment made by one party to another in exchange for the transfer of something of value.

Question 25

Contra Asset Accounts are credited or debited?

Answer 25

They are always credited.

Question 26

bank collection

Answer 26

Collection of money by the bank on behalf of a depositor

Question 27

bank reconciliation

Answer 27

a document explaining the reasons for the difference between a depositor’s records and the bank’s records about the depositor’s cash.

Question 28

bank statement

Answer 28

Document showing the beginning and ending balances of a particular bank account listing the month’s transactions that affected the account

Question 29

cash budget

Answer 29

a budget that projects the entity’s future cash receipts and cash disbursements

Question 30

cash equivalents

Answer 30

Investments such as time deposits, certificates of deposit, or high-grade government securities that are considered so similar to cash that they are combined with cash for financial disclosure purposes on the Balance Sheet and cash flow statement.

Question 31

check

Answer 31

Document instructing a bank to pay the designated person or business the specified amount of money

Question 32

controller

Answer 32

the chief accounting officer of a business

Question 33

deposits in transit

Answer 33

a deposit recorded by the company but not yet by its bank

Question 34

doubtful-account expense

Answer 34

another name for uncollectible-account expense or bad-debt expense

Cost to the seller of extending credit. Arises from the failure to collect from credit customers.

Question 35

exception reporting

Answer 35

Identifying data that is not within “normal limits” so that managers can follow up and take corrective action. Exception reporting is used in operating and cash budgets to keep company profits and cash flow in line with management’s plans.

Question 36

imprest system

Answer 36

a way to account for petty cash by maintaining a constant balance in the petty cash account, supported by the fund (cash plus payment tickets) totaling the same amount.

Question 37

lapping

Answer 37

a fraudulent scheme to steal cash through misappropriating certain customer payments and posting payments from other customers to the affected accounts to cover it up. Lapping is caused by weak internal controls.

Question 38

lock-box system

Answer 38

a system of handling cash receipts by mail whereby customers remit payment directly to the bank, rather than through the entity’s mail system.

Question 39

misappropriation of assets

Answer 39

Fraud committed by employees by stealing assets from the company

Question 40

non-sufficient funds (NFS) cheque

Answer 40

A “hot” cheque, one for which the payer’s bank account has insufficient money to pay the cheque. NSF cheques are cash receipts that turn out to be worthless

Question 41

outstanding cheques

Answer 41

a cheque issued by the company and recorded on its books but not yet paid by its bank

Question 42

receivable collection period

Answer 42

the average number of days to collect receivables from customers, calculated by dividing 365 by receivable turnover. Also called days’ sales in receivables or days sales outstanding.

Question 43

receivable turnover

Answer 43

the number of times receivables are collected during the year, approximated by taking total sales divided by average receivables.

Question 44

remittance advice

Answer 44

an optional attachment to a cheque that indicates the payer, date and purpose of the cash payment. The remittance advice is often used as the source documents for posting cash receipts or payments.

Question 45

treasurer

Answer 45

in a large company, the department that has total responsibilities for cash handling and cash management. This includes cash budgeting, cash collections, writing cheques, investing excess funds, and making proposals for raising additional cash when needed.