Chapter 4 payment for goods and services: Cash and accounting receivable

Question 1

Bank statement

Answer 1

Monthly report prepared by bank that contains details of a company’s deposits, disbursements, and bank charges

Question 2

bank reconciliation

Answer 2

Report prepared by the company after receiving the bank statement that compares the bank statement with the company’s records to verify the accuracy of both.
a comparison between the cash balance in the firm’s accounting records and the cash balance on the bank statement to identify the reasons for any differences.
The purpose of the bank reconciliation is to provide a control to protect cash. The amount of cash reported on the bank statement (an independently calculated balance) must be reconciled to the cash reported in the accounting records.
A firm would prepare a bank reconciliation as often as the bank provided a statement, usually once each month.

Question 3

Outstanding check

Answer 3

A check written by the company that has been recorded on the company’s records but has not yet cleared the bank

Question 4

Deposit in transit

Answer 4

A deposit that the company has made and recorded, but it has not reached the bank’s record keeping system yet

Question 5

NSF check

Answer 5

is a “bad” check written by a customer that must be deducted from the company’s records.
The company recorded the check as a cash receipt (and then deposited it), but the check writer didn’t have the money in his or her account to cover it.
The back will have already deducted it from the company balance (in the bank’s records), but the company will have to make an adjustment to their records.

Question 6

Credit memo

Answer 6

An addition to the company’s balance in the bank’s records for a reason such as the bank having collected a note for the company (from a third party who owed the company)

Question 7

Debit memo

Answer 7

A deduction from the company’s balance in the bank’s records for a reason such as a bank service charge

Question 8

Bank(Cash) reconciliation has two independent parts

Answer 8

Balance per bank : + Deposits in transit +/- Banks errors - outstanding checks= True cash balance

Balance per books: + collections made by bank - service charges by bank - NSF checks +/- company errors= True cash balance