Cash & Receivables Flashcards
Cash & Cash Equivalents
Includes currency and demand deposits; are short-term, highly liquid investments that are 1) readily convertible to cash or 2) Near maturity when acquired (90 days or less)
Cash & Cash Equivalents Excludes
1) CDs with maturity date greater than 90 days
2) Legally restricted deposits
What is a Bank Reconciliation?
Represents the difference between the cash balance per the bank and balance per books
Steps to a Bank Reconciliation
1) Deposits in Transit
2) Outstanding Checks
3) Service Charges
4) Errors
5) Non-sufficient Funds
6) Interest Income
Deposits in Transit on Bank Rec
Funds sent to the bank but not yet recorded by the bank; any deposits made after the bank’s cutoff date will not be included in the bank statement; the balance per the books will be greater than balance per the bank, so add to bank balance in reconciliation
Outstanding Checks on Bank Rec
Checks written for payment that have not cleared bank account; bank balance will be greater than book balance so subtract from bank balance
Service Charges on Bank Rec
Deducted by bank and will show on bank statement; not recorded in books until made aware - should be subtracted from book balance
Errors on Bank Rec
Can be made by either the bank or on the books, so it causes a difference in balances
Non-sufficient Funds on Bank Rec
Not enough funds in bank account to clear a written check; The amount charged will be the amount of the check plus a bank fee.
Because the NSF check and the related bank fee have already been deducted on the bank statement, there is no need to adjust the balance per the bank. However, if the company has not yet decreased its Cash account balance for the returned check and the bank fee, the company must decrease the balance per books in order to reconcile.
Interest Income on Bank Rec
will appear on the bank statement when a bank gives a company interest on its account balances. The amount is added to the checking account balance and is automatically on the bank statement. Hence there is no need to adjust the balance per the bank statement. However, the amount of interest earned will increase the balance in the company’s Cash account on its books.
Recall “put it where it isn’t.” Interest received from the bank is on the bank statement, but it isn’t on the company’s books. Put it where it isn’t: as an adjustment to the Cash account on the company’s books.
Trade Receivables
Oral promises to pay debts from purchasers of a company’s goods/services (nontrade is from nonsales transactions)
Net Realizable Value
= Balance of A/R adjusted for allowances that may be uncollectible and sales discounts & returns
Accounts Receivable Balance Formula
Beg. A/R \+ credit sales - write-offs -conversion to N/R - $ collected = Ending A/R
Journal Entry to record A/R on date of sale using the NET METHOD
(Sales of $100,000 2/10, n/30)
Dr. A/R $98,000 (100K x .98)
Cr. Sales $98,000
Journal Entry to record A/R if payment is received within n/30 under NET METHOD
(Sales of $100,000 2/10, n/30)
Dr. Cash $98,000
Cr. A/R $98,000
Balance is already netted on date of sale
