Accounting Chapter 6

How are outstanding checks identified?

By comparing the list of canceled checks on the bank statement with the record of checls (such as check stubs or a journal) maintained by the company

Outstanding Checks

Checks written by the company and recorded in the company's ledger as credits to the Cash account that have not cleared the bank (not shown on the bank statement as a deduction from the bank balance)

NSF Checks

"Bad Checks" or "Bounced Checks" that have been deposited but must have been deducted from the company's cash account and rerecorded as accounts receivable

FOB shipping point

Title changes hands at shipment and the buyer normally pays for shipping

Interest

The interest paid by the bank to the company on its bank balance

FOB destination

Title changes hands on delivery and the seller normally pays for shipping

Errors

Both the bank and the company may make errors, especially when the volume of cash transactions is large

How are deposits in transit determined?

By comparing the deposits listed on the bank statement with the company deposit records

Deposit In Transit

Deposits sent to the bank by the company and recorded in the company's ledger as debits to the Cash account The bank has not recorded these deposits (they aren't shown on the bank statement as an increase in the bank issue) Usually happen when deposits are made one or two days before the close of the period covered by the bank statement

Bank Service Charges

Expenses for bank services listed on the bank statement but not recorded on the company's books

Cash Equivalent

Investments with original maturities of three months or less that are readily convertible to cash and whole value is unlikely to change (not sensitive to interest rate changes) Example: Bank certificates of deposit, Treasury bills

Cash

Money or any instrument that banks will accept for deposit and immediate credit to a company's account, such as a check, money order, or bank draft

Revenue Recognition Principle

Requires that revenues be recorded when the company transfers goods and services to customers, in the amount it expects to be entitled to receive

When do sellers record sales revenue?

When the title and risks of ownership transfer to the buyer