Cash and banking, notes and interest, uncollectables Flashcards
1.Commercial paper
-“draws on funds” in a bank
2. Source document recorded by the drawer
1.Check
2. Check stub
A bank form that lists cash item and checks to be deposited
Deposit ticket / deposit slip
Process a drawer goes through to figure out how much money is in an account at one time
-Determines the corrected cash balance
Bank reconciliation
Itemized listing prepared by the bank of additions and subtractions from accounts
Bank statement
What are the steps to reconcile a bank statement?
- Trace outstanding items for the previous month
- Compare the deposits
- Compare the checks issued
- Scan the bank statement for changes and credits we missed
-inflows
-outflows
What does it mean to trace outstanding items in the bank reconciliation process?
Did all the problem makers from the last reconciliation get cleared up?
What does it mean to compare deposits in the bank reconciliation process?
Did all of the deposits make it onto the bank statement?
Deposits that have been made and added to the depositor’s checkbook but have not yet been listen on the bank statement
Deposits in transit
What does it mean to compare the checks issued in the bank reconciliation process?
Did all written checks get removed, cleared, and show up as a deduction on the bank statement?
Checks that have been drawn and subtracted from the depositor’s checkbook but have not yet been presented to the bank for payment.
-The check is cashed much later
-Already deducted from T chart, not yet deducted from bank statement
Outstanding check
A check not paid by the bank when properly presented
-lack of funds, forgot to sign, filled out incorrectly
-Already subtracted from T chart, not bank statement
-Can either erase from the T chart or cancel the check and write a new one
Dishonored check
A check which has been paid by the bank and is returned to the drawer for record keeping
-Already subtracted from T chart and bank
Canceled check
What does it mean to scan the bank statement for changes and credits we missed in the bank reconciliation process?
To scan the bank statement for changes not yet reflected on the general ledger cash T account
Items the bank deducts from the account balance
-Items that the bank records as cash disbursements (subtracted) to the bank account balance but not yet recorded in the GL cash balance
-Already recorded as deduction to bank statement but not to T chart
Debit memorandum
Items the bank records as a cash receipt (adds) to the bank account balance, but not yet recorded in the general ledger cash T account balance
-Already recorded on the bank statement but not in the T account
Credit memorandum
An order by a depositor requesting a bank not to pay on a check previously issued
Stop payment order
The issuance of a check without sufficient funds in the account when it is presented for payment
Overdraft
An amount written with the digits in the incorrect order
Transposition error
A written promise made by a person or business to pay a certain sum of money to another person or business at a specified time in the future
Promissory note
Date on which payment is due on a promissory note
Maturity date
What is the equation used to calculate interest?
Interest = Principle x Rate x Time
Interest formula”
1. The face note of a promissory note upon which interest is computed (how much is owed at this point in time?)
2. The annual percentage rate used to compute interest
3. The period of time from the date of the note to the maturity date (APR)
- Principal
- Rate
- Time
What is the APR for a monthly repayment frequency?
1/12
There are two methods used to write off accounts deemed uncollectable, what are they?
- The direct write off method
- The allowance method
There are two accounts used to account for uncollectibles, what are they?
- Bad debt expense
- Allowance for doubtful accounts
An expense account for accounts receivable that are uncollectable
Bad debt expense
What account does the Bad debt expense account offset?
Revenue
Directly writes off the account receivable when we acknowledge that it will not be collected
-Only use the bad debt expense
-Directly credit A/R
Direct write off method
A contra-asset account utilized to accumulate totals against accounts receivable
Allowance for doubtful accounts
An account used to offset/ contradict the value of another related account
Conta account
Use of a contra account to offset A/R
The allowance method
