Cash and Cash Equivalents Flashcards
Items excluded from cash
Certificates of deposit
Compensating balances (restricted as to use)
Bond Sinking fund
Simple Reconciliation
Balance per Bank Statement \+ Deposits in Transit \+ Cash on Hand (Outstanding Checks) \+/- Errors made by the bank = True Cash Balance
Balance per book \+ Interest Earned \+ Notes Collected (Service Charges) (NSF Checks) \+/- Errors Made on the books = True Cash Balance
Chain Trade Discount application
Are applied to each successive net amount shown in the calculation, and the cash discount is then applied to the final invoice amount
Cost (1-.30)(1-.20)(.98)
Direct Write Off Method
Does not conform with GAAP.
Does not match expenses with revenues
DR. Bad Debt Expense
CR. Accounts Receivables
Allowance Method
The allowance is a contra account to AR. Utilizes matching principle and valuation of AR and NRV
Income Statement Approach
Estimate as a % of sales
Directly calculates the amount of bad debt expense
Credit sales % sales uncollected = bad debt expense
Balance Sheet Approach
Estimates as a % of AR balance outstanding
Directly calculates the ending balance of the allowance account
AR * % AR uncollected = Balance Needed in the Allowance Account
Write off Method Journal Entry
When an account becomes uncollected, write off entry
DR: Allowance
CR: Accounts Receivable
Entry to record Allowance for Uncollected Account
DR: Allowance for Uncollected Accounts
CR: Accounts receivable
Both accounts are decreased.
Determining Balance for Ending Allowance Balance
Beginning Allowance Balance \+ Uncollected Accounts Expense (Write Offs) \+ Recoveries = Ending Allowance Balance
Recording a collection on an account that has been written off under the allowance method
DR: Accounts Receivable
CR: Allowance for Uncollectibles
DR: Cash
CR: Accounts Receivable
