FAR 2A - Cash Flashcards
What is the formula for Bank Reconciliation from the Bank Statement to the GL Balance?
Bank Reconciliation = Bank Statement Balance + Deposits in Transit - Outstanding Checks = Adjusted GL Balance.
Example: If the bank statement balance is $50,000, deposits in transit are $5,000, and outstanding checks are $3,000, then Adjusted GL Balance = $50,000 + $5,000 - $3,000 = $52,000.
What is the formula for Bank Reconciliation from the GL to the Bank Statement?
GL Balance - Bank Charges + Interest Revenue - NSF Checks = Adjusted GL Balance.
Example: If the GL balance is $55,000, bank charges are $500, interest revenue is $100, and NSF checks are $300, then Adjusted GL Balance = $55,000 - $500 + $100 - $300 = $54,300.
What are deposits in transit?
Deposits in transit are checks that the company has received and recorded but has not yet deposited at the bank. They are added to the bank statement balance during reconciliation.
What are outstanding checks?
Outstanding checks are checks that have been written, issued, and recorded in the company’s books but have not yet cleared the bank. They are subtracted from the bank statement balance during reconciliation.
What are cash and cash equivalents?
Cash and cash equivalents are highly liquid investments with original maturities of three months or less.
Examples: Checking accounts, petty cash, commercial paper, treasury bills, money market funds.
What is the classification of negative bank balances?
If the negative balance is in an account at a different bank, classify it as a current liability.
If the negative balance is within the same bank, you may net it with other accounts.
How are NSF checks treated in the bank reconciliation?
NSF (Non-Sufficient Funds) checks are added back to the GL balance if they were originally recorded as deposited but were rejected by the bank.
What adjustments should not be included in the bank reconciliation?
Bank fees, NSF checks, interest earned, and entity errors should not be manually adjusted during the reconciliation, as these are already reflected in the bank statement or entity records.
What is a check drawn on an account?
When a check is drawn on an account (e.g., XYZ account), the funds to cover the check are taken from that account, and the payee receives the money from it.
What are cash disbursements?
Cash disbursements refer to the transfer of funds from the payer to the payee, through methods such as checks, online transfers, or cash.
What is the effect of bank fees on bank reconciliation?
Bank fees (e.g., service charges) are already recorded by the bank and should not be manually adjusted during reconciliation. Instead, they are captured directly in the entity’s records.
What is the treatment of interest earned in bank reconciliation?
Interest earned by the bank is recorded in the bank statement and does not need a manual adjustment during the reconciliation process.
How do you handle errors made by the entity in the bank reconciliation?
Errors made by the entity should be corrected within the entity’s records but should not be adjusted manually in the bank reconciliation itself.
What are checks outstanding, and how do they affect the reconciliation?
Checks outstanding are subtracted from the bank statement balance during reconciliation because they have been recorded in the books but have not yet cleared the bank.
What are undeposited checks (deposits in transit), and how are they handled in the bank reconciliation?
Undeposited checks (deposits in transit) are added to the bank statement balance since they have been recorded by the entity but not yet reflected in the bank statement.
