Accounting CH5 Flashcards
From Reken Maar summary
Do depreciation costs have an influence on cash flow?
No they do not
proceeds
Einnahmen
dr.
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”.)
accounts receivables are also called
trade receivables, debtors, receivables
What are receivables?
monetary claims against others
accounts payable are also called
creditors or payables
are shareholders’ equity, owner’s equity and equity the same?
Yes.
What is a creditor?
the party to whom money is owed. The creditor is also called the lender.
What is a Debtor?
The party that borrowed and owes money on the note. The debtor is also called the maker of the note or the borrower.
What is Interest?
Interest is the cost of borrowing money
Maturity date
The date on which the debtor must pay the note
Maturity value
The sum of principal and interest on the note payable on maturity
Principal
The amount of money borrowed by the debtor
What is the Term?
The length of time from when the note was signed by the debtor to when the debtor must pay the note.
Does the creditor have a note payable?
Yes.
The debtor has a note payable
What is Impairment?
Impairment is an accounting principle that describes a permanent reduction in the value of a company’s asset, normally a fixed asset.
What is a provision?
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.
What are defaults?
Generally, default refers to a company or individual who fails to make payments or interest payments on time.
What is a write down?
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.
What Is a Demand Deposit?
A demand deposit consists of funds held in an account from which deposited funds can be withdrawn at any time from the depository institution, such as a checking or savings account, accessible by a teller, ATM or online banking.
Gross Cash
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.
Net Cash
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.
Significance of Net Cash
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.
Consideration
Consideration is a payment made by one party to another in exchange for the transfer of something of value.
Contra Asset Accounts are credited or debited?
They are always credited.
bank collection
Collection of money by the bank on behalf of a depositor
bank reconciliation
a document explaining the reasons for the difference between a depositor’s records and the bank’s records about the depositor’s cash.
bank statement
Document showing the beginning and ending balances of a particular bank account listing the month’s transactions that affected the account
cash budget
a budget that projects the entity’s future cash receipts and cash disbursements
cash equivalents
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.
check
Document instructing a bank to pay the designated person or business the specified amount of money
controller
the chief accounting officer of a business
deposits in transit
a deposit recorded by the company but not yet by its bank
doubtful-account expense
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.
exception reporting
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.
imprest system
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.
lapping
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.
lock-box system
a system of handling cash receipts by mail whereby customers remit payment directly to the bank, rather than through the entity’s mail system.
misappropriation of assets
Fraud committed by employees by stealing assets from the company
non-sufficient funds (NFS) cheque
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
outstanding cheques
a cheque issued by the company and recorded on its books but not yet paid by its bank
receivable collection period
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.
receivable turnover
the number of times receivables are collected during the year, approximated by taking total sales divided by average receivables.
remittance advice
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.
treasurer
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.
