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Accounting > Accounting Chap 7` > Flashcards

Accounting Chap 7` Flashcards

1
Q

___ includes currency, coins, checks, money orders, and cashier’s checks

A

Cash

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2
Q

Because ___ plays such a central role in operating a business, a system of ___ is necessary

A

cash

internal control

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3
Q

A set of procedures designed to ensure proper accounting for transactions
Including transactions:
 All cash received should be deposited DAILY in a bank
 All disbursements, except for payments from petty cash, should be made by CHECK

A

INTERNAL CONTROL

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4
Q

When opening a checking account, A ___ must be completed and signed by an authorized person and the depositor’s social security number or employer identification
number (EIN) is shown on the card to identify the depositor.

A

signature card

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5
Q

This card is used to verify the depositor’s signature on any banking transactions

A

signature card

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6
Q

A ___ is a form showing a detailed listing of items being deposited
 Currency, coins, and checks are listed
separately

A

deposit ticket

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7
Q

Checks are identified by their

A

ABA (American Bankers Association) Numbers

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8
Q

 Each check being deposited must be endorsed by the depositor
 Consist of stamping or writing the depositor’s name and sometimes other information on the back of the check

A

ENDORSEMENTS

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9
Q

The depositor simply signs the back of the check.

This makes the check payable to any bearer.

A

Blank endorsement

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10
Q

The depositor adds words such as “For deposit,” “Pay to any bank,” or “Pay to Daryl Beck only” to restrict the payment of the check.

A

Restrictive endorsement

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11
Q

Automated teller machines (ATMs) allow depositors to make deposits or withdrawals at all times.

A

a) Each depositor has a plastic card.
b) Each depositor has a personal identification number (PIN).
c) It is important for the depositor to keep an accounting record of ATM transactions.

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12
Q

A ___ is a document ordering a bank to pay cash from a depositor’s account

A

check

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13
Q

Three parties to each check

A

drawer
drawee
payee

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14
Q

The ___ is the depositor who orders the bank to pay the cash.

A

drawer

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15
Q

The ___ is the bank on which the check is drawn

A

drawee

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16
Q

The ___ is the person being paid the cash

A

payee

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17
Q

Recording methods

A

a) Check stubs
b) Check register
c) Financial computer software package

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18
Q

Steps in preparing a check

A

a) Complete the check stub or register.
b) Enter the date, payee name, and the amount of the check.
d) Sign the check.

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19
Q

The check stub or register should be completed ___ and that the signature is done ___ since it is the actual authorization to the bank to pay the money.

A

first

last

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20
Q

Bank Statement

A
  1. Gives the balance at the beginning of the period.
  2. Lists deposits and other amounts added during the period.
  3. Lists checks and other amounts subtracted during the period.
  4. Gives the balance at the end of the period.
  5. Provides the depositor with cancelled checks or the equivalent and any other forms representing items added to or subtracted from the account.
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21
Q

With ___ & ___, there can be timing differences between the depositor’s books and the bank’s books

A

deposits

cash payments

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22
Q

Reasons for Differences Between Bank and Book Balances

A
  1. Deposits in transit
  2. Outstanding checks
  3. Service charges
  4. Collections
  5. Not sufficient fund (NSF) checks
  6. Errors
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23
Q

Deposits that have not reached the bank
or been recorded by the bank before the
statement is prepared

A

Deposits in transit

24
Q

Checks that have not been presented to

the bank for payment before the statement is prepared

A

Outstanding checks

25
Q

Bank charges for services such as check printing and processing

A

Service charges

26
Q

Collections of promissory notes or
charge accounts made by the bank on
behalf of the depositor

A

Collections

27
Q

Checks deposited but not paid because

the drawer did not have sufficient funds

A

Not sufficient fund (NSF) checks

28
Q

Errors made by the bank or by the

depositor in recording cash transactions

A

Errors

29
Q

Steps in Preparing the Bank Reconciliation

A
  1. Identify deposits in transit and any related errors.
  2. Identify outstanding checks and any related errors.
  3. Identify additional reconciling items
30
Q

Identify deposits in transit and any related errors.

A

a) Compare deposits listed on the bank statement with deposits in transit on last month’s bank reconciliation.
(1) All of last month’s deposits in transit should appear on the current month’s bank statement.
b) Compare the remaining deposits on the bank statement with deposits listed in the accounting records.
(1) Any deposits listed in the accounting records but not on the bank statement are deposits in transit on the current bank reconciliation.
c) Compare the individual deposit amounts on the bank statement and in the accounting records.
(1) If they differ, the error needs to be corrected.

31
Q

Identify outstanding checks and any related errors.

A

a) Compare canceled checks with the bank statement and the accounting records.
(1) If the amounts differ, the error needs to be corrected.
c) As each canceled check is compared with the accounting records, place a check mark on the check stub or other accounting record to indicate that the check has cleared.
c) Any checks written that have not been checked off represent outstanding checks on the bank reconciliation.
(1) This includes outstanding checks from last month’s
bank reconciliation that have not yet cleared.

32
Q

A depositor’s account is a ___ to the bank. Thus, a credit memo ___ this liability; a debit memo ___ the liability.

A

liability

increases

reduces

33
Q

Illustration of a Bank Reconciliation

  1. Deposits in transit are ___ to the bank statement balance.
  2. Outstanding checks are ___ from the bank statement balance.
A

added

subtracted

34
Q

Illustration of a Bank Reconciliation

  1. Error in recording a check
    a) ___ to the book balance if too much is deducted.
    b) ___ from the book balance if not enough is deducted.
  2. Unrecorded ATM withdrawals are ___ from the book balance.
A

Add

Subtract

deducted

35
Q

Illustration of a Bank Reconciliation

  1. NSF check amounts are ___ from the book balance.
  2. Bank service charges are ___ from the book balance.
A

deducted

deducted

36
Q

BANK RECONCILIATION JOURNAL ENTRIES

Only two kinds of items appearing on a bank reconciliation require journal entries:

A
  1. Errors in the depositor’s books

2. Bank additions and deductions that do not already appear in the books

37
Q

ALL items in the ___ section of the reconciliation require a journal entry

A

book balance

38
Q

Journal Entries

A
  1. Errors in the depositor’s books require journal entries.
  2. Bank additions and deductions that do not already appear in the books require journal entries.
  3. Cash is debited or credited as appropriate.
  4. The account for which cash was spent or received is debited or credited as appropriate.
39
Q

Uses a computer rather than paper checks to complete bank transactions.

A

Electronic Funds Transfer (EFT)

40
Q

A fund set up to pay for small items with cash

 Checks for very small amounts are cumbersome

A

PETTY CASH FUND

41
Q

Establishing a Petty Cash Fund

A
  1. A check is written to the petty cash custodian for the amount to be set aside in the fund.
  2. The custodian cashes the check and places the money in a petty cash box
42
Q

Petty Cash is an asset that is listed immediately ___ Cash on the balance sheet.

A

below

43
Q
  1. The ___ should be the only person authorized to make payments from the petty cash fund.
A

custodian

44
Q

A receipt prepared for every payment from the petty cash fund

A

Petty cash vouchers

45
Q

Petty Cash Voucher shows the:

A

 Name of the payee
 Purpose of the payment
 Account to be charged for the payment (e.g., Postage Expense)
 Signatures of the custodian and payee

46
Q

Making Payments from a Petty Cash Fund

A
  1. Petty cash vouchers should be prepared for each payment from the
    fund.
  2. Vouchers should be signed by the custodian and by the person receiving the cash.
  3. Vouchers should be numbered consecutively so that all vouchers can be accounted for.
47
Q

A special multi-column record that supplements the regular accounting records
 Provides a record of each petty cash payment
 Broken down by account
– e.g.: Travel/Entertainment Expense,
Postage Expense, etc.
 Used to prepare the replenishment
journal entry

A

PETTY CASH PAYMENTS RECORD

48
Q

The petty cash fund should be replenished whenever the fund runs
___ and at the ___ of each accounting period

A

low

end

49
Q

Once the petty cash fund is established by ___ Petty Cash and ___
Cash, no further entries are made to Petty Cash

A

debiting

crediting

50
Q

To replenish the fund, ___ are made to appropriate expense accounts and Cash is ___
 Only if the amount of the fund itself is
being changed would there be a debit or
credit to Petty Cash

A

debits

credited

51
Q

Replenishing the Petty Cash Fund

A
  1. Should be replenished when the fund runs low.
  2. Should be replenished at the end of each accounting period.
  3. The information in the petty cash payments record is used to replenish the petty cash fund.
    a) Once the petty cash is established, an entry is made to Petty Cash only if the amount of the fund is being changed.
    b) In the journal entry to replenish the fund, the debits are to appropriate expense and drawing accounts and the credit is to Cash.
52
Q

A supply of currency and coins kept in the cash register or cash drawer
 Allows businesses to make change when
customers pay in cash

A

CHANGE FUND

53
Q

Establish a Change Fund

A
  1. Once established, no further entries are made to the change fund unless the amount of the change fund itself is being changed.
  2. The change fund is an asset that is listed immediately below cash on the balance sheet.
54
Q

Used to accumulate cash shortages and overages throughout the accounting period.

A

Cash Short and Over

55
Q
  1. The Cash Short & Over account is ___ when cash is short and ___ when cash is
    over.
  2. At the end of the period, a debit balance in the Cash Short & Over account (a net
    shortage) is treated as an ___.
  3. At the end of the period, a credit balance in the Cash Short & Over account (a net
    overage) is treated as revenue.
A

debited
credited

expense

56
Q

Is the set of procedures, processes, and records established to initiate, process, record, and report the business’s transactions.
Accounts for the related assets and liabilities.

A

Information and Communication System

Accounting (9 decks)

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