F3 Flashcards
Cash Reconciliation - Bank adjustments
- In transit deposits (not yet in bank) - add
- Outstanding / unrecognized cut checks - deduct
- Bank Errors - fix
Cash reconciliation - book adjustments
- EFT (electronic funds transfer unrecorded) (add)
- Bank Service charges (deduct)
- Accountant Error (fix)
- NSF check (bounced) - deduct
- Earned interest - add
Money market account
Cash
AP checks recorded on 12/31 but not mailed until Jan 15 - reconciled in reporting period or next year?
Next year
Checkbook vs Bank Bal - given no other info, which should you assume is correct on 12/31?
Book balance, once finally adjusted, will not equal bank balance. Assume book bal is correct because bank balance will lack checks in transit
Is a 90 day certificate of deposit a cash equivalent?
Yes
Is a post dated check from customer a cash equivalent?
If dated AFTER the balance sheet date, no - otherwise yes
What must you be careful of with bank rec questions?
Are you reconciling the bank bal. vs the book bal. - different items for each category
AR vs Note Receivable
AR is an ORAL promise, note is a WRITTEN promise
Sales discounts gross Method expectation of customer payment
Expect customer to NOT take discount
Sales discounts NET Method expectation of customer
You expect customer to TAKE the discount
Sales discounts gross method vs net method special accounts
Gross: Sales discounts taken
Net: Sales discounts NOT taken
Is a sales / cash discount a speed or qty discount?
Speed
What type of discount is a trade discount?
Qty / volume / economies of scale discount
What methods can be applied to trade discounts?
Net only
What is the general rule for expected sales returns?
Do not journalize UNLESS % of returns is MATERIAL and can be REASONABLY ESTIMATED
How to journalize sales returns and allowances?
Sales returns and allowances
AR
What kind of account is sales returns and allowances?
Contra Revenue
What is the direct write off method for uncollectible AR and what is it used for?
No Allowance for Doubtful Accts, only write off to bad debt expense when uncollectible. NOT GAAP. Used for tax purposes.
What is the allowance method and what is it used for?
Used for GAAP. Record bad debt expense and CR allowance for Doubtful, write off to allowance for Doubtful
Difference between income statement Approach and b/s approach in calculating allowance for Doubtful ending balance?
I/S - calculate the delta first
B/S - calculate the ending bal. first
Certificate of deposit
A bank account where you agree to leave your money in and can’t withdraw until x date. Why done? Better interest rate
How is cash paid for a cash equivalent recorded on statement of cash flows?
It isn’t. It’s exchanging cash for cash basically. Net zero change
What is the effect on writing off AR in GAAP on b/s and I/s?
No change. Offsets