Discusstion Questions Chapter 7 Flashcards
What is internal control?
Policies and procedures to ensure accurate financial reporting, safeguard assets, and prevent fraud.
How does the preparation of a bank reconciliation strengthen the internal control of cash?
Identifies errors/fraud, ensures accuracy, prevents misappropriation, and improves cash management.
What are some reconciling items that appear in a bank reconciliation?
Deposits in transit, Outstanding checks, Bank service charges, NSF checks
Errors, Interest earned
What are the steps in preparing a bank reconciliation?
Obtain bank statement and cash book, Compare deposits, Compare checks issued, Identify bank charges/credits, Adjust the cash book, and Reconcile adjusted balances.
What is an NSF cheque?
A check that cannot be processed due to insufficient funds.
What is a petty cash system?
A small amount of cash kept on hand for minor expenses.
What is the difference between establishing and replenishing the petty cash fund?
Establishing is Setting up the initial fund amount while Replenishing is refilling the fund to its original amount after expenses.
How does use of allowance for doubtful accounts match expenses with revenue?
Estimates bad debts to match expenses with revenue in the same period.
How does the income statement method calculate the estimated amount of uncollectible accounts?
Applies a percentage to total credit sales to estimate uncollectibles.
What is an ageing schedule for bad debts, and how is it used in calculating the estimated amount of uncollectible accounts?
Categorizes receivables by age, applying higher uncollectible rates to older debts.
How are credit balances in accounts receivable reported on the financial statements?
Reported as liabilities on the balance sheet.
