Test 2 Chap 6-12 Flashcards
Another name for a cash payments journal when the journal has a column for check numbers
Check register
Journal (referred to as book of original entry) in which all vouchers are recorded after they have been approved.
Voucher register
Document containing a checklist of steps necessary for approving the recording and payment of an invoice; also called check authorization.
Invoice approval
Form used to report that ordered goods were received and to describe their quantity and condition
receiving report
Itemized record of goods prepared by the vendor that lists the customer’s name, items sold, sales prices, and terms of sale.
Invoice
Document used by the purchasing department to place an order with a seller (vendor)
Purchase order
Document listing merchandise needed by a department and requesting it be purchased
Purchase requisition
Measure of the liquidity of receivables, computed by dividing the current balance of receivables by the annual credit (or net) sales and then multiplying by 365; also called days’ sales in receivables
Days’ sales uncollected
Add interest earned and unrecorded cash receipts
Subtract bank fees and NSF checks
Add or subtract corrections of book errors
Book Balance Adjustments
Add deposits in transit
Subtract outstanding checks
Add or subtract corrections of bank errors
Bank Balance Adjustments
Checks written and recorded by the depositor but not yet paid by the bank at the bank statement date.
Outstanding checks
Deposits recorded by the company but not yet recorded by its bank
Deposits in transit
Report that explains the difference between the book (company) balance of cash and the cash balance reported on the bank statement, for purposes of computing the adjusted cash balance.
Bank reconciliation
- Bank service fees
-Checks deposited that are uncollectible
-Corrections of previous errors
-Withdrawals through ATMS
-Payments arranged in advance by a depositor
Usual deductions on banks statement:
Checks that the bank has paid and deducted from the depositor’s account.
Canceled checks
Bank report on the depositor’s beginning and ending cash balances, and a listing of its changes( deposits and withdrawals), for a period.
Bank Statement
Use of electronic communication to transfer cash from one party to another.
Companies use because convenience and low cost
(payrolls, rent, utilities, insurance and interest payments)
Electronic funds transfer (EFT)
maker: who signs check
payee: recipient of check
bank( payer): on which the check is drawn
3 parties involving a check
(to withdraw money used by depositor) Document signed by a depositor instructing the bank to pay a specified amount to a designated recipient
Check
Lists items such as currency, coins, and checks deposited and their corresponding dollar amounts (bank gives customer as proof of receipt)
Deposit ticket
Includes the signature of each person authorized to sign checks on the bank account. (verifies signatures)
Signature Card
Used to deposit money for safekeeping and helps control withdrawls
Bank Account
Debit: Cash
Credit: Petty cash
Record decrease of petty cash fund
Debit: merchandise inventory/any expenses
Credit: Cash
Record petty cash payments report and reimburse the fund
Debit: petty cash (asset)
Credit: Cash
After the petty cash fund is established, the Petty Cash account is not touched again unless the amount of the fund is changed
Record the setup of petty cash fund/increase petty cash fund
Small amount of cash in a fund to pay minor expenses; accounted for using an imprest system.
Petty Cash
Procedures and approvals designed to control cash payments and acceptance of liabilities:
-verifying, approving, and recording liabilities for cash payment
-issuing checks for payment of these approved, verified, and recorded liabilities
Voucher System
-require all payments to be made by check
-deny access to accounting records to anyone other than the owner who has authority to sign checks
-voucher and petty cash system
Controls of Cash payment
Debit: Cash and Cash over and short
Credit: Sales
Record cash sales and its shortage:
Debit: Cash
Credit: Cash Over and Short and Sales
Record cash sales and its overage:
Income statement account used to record cash overages and cash shortages arising from errors in cash receipts or payments (this would be an expense account)
Cash over and short
The cashier and clerk have access to the cash but no access to the accounting records. The supervisor has access to the records for cash but not the actual cash.
Over the counter cash receipts flow
- Encourage collection of receivables
- Delay payment of liabilities
- Keep only necessary assets
- Plan expenditures
- Invest excess cash
Cash management strategies:
Treasurer
Who is responsible for cash management?
- Plan cash receipts to meet cash payments when due
- Keep a minimum level of cash necessary to operate
Goals of cash management
Short-term investment assets that are readily convertible to a known cash amount or sufficiently close to their maturity date (usually within 90 days) so that market value is not sensitive to interest rate changes.
Cash equivalents
Includes currency, coins, and amounts on deposit in bank checking or savings accounts (checks and money orders)
Cash
Resources such as cash that are easily converted into other assets or used to pay for goods, services, or liabilities
Liquid Assets
Availability of resources to meet short-term cash requirements
Liquidity
- Handling cash is separate from recordkeeping of cash
- Cash receipts are promptly deposited in a bank
- Cash Payments are made by check or electronic funds transfer (EFT)
Internal control guidelines to protect cash
costs of internal controls should not exceed their benefits
Cost benefit constraint
Highlights three factors that push a person to commit fraud: opportunity, pressure, and rationalization
Fraud Triangle
- human error or fraud
- cost-benefit constraint
Limitations of Internal control
Technology used to create a secure ledger of transactions
Blockchain
- Credit card theft
- Computer Viruses
- Identity theft
E-Commerce transactions are involved with what risks:
- establish responsibility
- maintain records
- insure assets/bond key employees
- separate recordkeeping from custody of assets
- divide responsibility for related transactions
- apply technological controls perform reviews
Principles of Internal Control:
- Company must have effective internal controls
- Auditors must evaluate internal controls
- Violators receive harsh penalties
-Auditors’ work is overseen by the Public Company Accounting Oversight Board (PCAOB)
Requirements of SOX act:
Requires managers and auditors of companies who stock is traded on exchange to document and verify internal controls. Some of the requirements include:
What is the Sarbanes-Oxley Act (SOX)?
Prevent avoidable losses, plan operations, and monitor company and employee performance
What do managers use internal control system for?
All policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies
What is internal control system?
Debit: Accounts Receivable
Credit: Sales
record credit sale to company
debit cash
credit accounts receivable
Record a collection of cash from a prior credit sale
- the seller does not have to decide who gets credit and how much
- seller avoids risk of the customers not paying it
-seller typically receives cash from the card company sooner
-more credit options lead to more sales
Why do sellers allow customers to use debit and credit cards?
Debit Cash and Credit card expense
Credit sales
Record credit card expense as selling expense
Accounts of customers who do not pay what they have promised to pay; an expense of selling on credit; also called uncollectible accounts
bad debts
Method that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate bad debts.
direct write-off method
Debit: Bad debts expense
Credit: Accounts receivable
Record uncollectible amount (direct write off)
Debit: Cash
Credit: Accounts Receivable
Recover a bad debt (direct write off)
- expense recognition: requires expenses to be reported in the same period as the sales they helped produce
- Materiality constraint: GAAP permits the use of the simple, low cost direct write off method when its results approximate those using the allowance method
2 concepts when considering the direct write-off method
Procedure that (a) estimates and matches bad debts expense with its sales for the period and/or (b) reports accounts receivable at estimated realizable value.
Allowance method
Debit: Bad debts expense
Credit: Allowance for doubtful accounts
Record estimate of the accounts receivable uncollectible
Contra asset account with a balance approximating uncollectible accounts receivable; also called
Allowance for doubtful accounts
Debit: Allowance for doubtful accounts
Credit: Account receivable
Record write off of uncollectible account (allowance method)
Percent of receivables method
