ch9- cash

prep bank reconciliation statement section 2:

1. enter the balance in books from the cash account 2. record any deposits made by the bank that have not been recorded in the accounting records 3. record deductions made by the bank (ex: NSF check or bank service charge) 4. record any errors in the accounting records that were discovered during the reconciliation process 5. new adjusted book balance NOTE: the adjusted bank balance and the adjusted book balance agree

prep bank reconciliation statement section 1:

1. enter the balance on the bank statement 2. compare the deposits in the checkbook with the deposits on the bank statement 3. list the outstanding checks: -put the canceled checks in numeric order -compare the canceled checks to the check stubs, verifying the check numbers and amounts -examine the endorsements to make sure that they agree with the names of the payees -list the checks that have not cleared the bank 4. while reviewing the canceled checks, one may be charged to you instead of another account and if so then its the banks fault and contact them and the correction will appear on the next bank statement 5. new adjusted bank balance

4 reasons why the book balance of cash may not agree with the balance on the bank statement

1. outstanding checks 2. deposit in transit 3. service charges and other deductions are not recorded in the business records 4. deposits, such as the collection of promissory notes, are not recorded in the business records

which of the following are features of online banking? a) a business can deposit checks using a dedicated scanner b) a business can receive electronic funds transfers from customers c) a business can receive alerts from the bank via text for unusual account activity d) all of these are features of online banking

d) all of these are features of online banking

petty cash is categorized as a(n): a) expense b) revenue c) liability d) asset

d) asset

which of the following records the receipt of a promissory note from a customer with an overdue accounts receivable balance? a) debit cash, credit accounts receivable b) debit cash, credit notes receivable c) debit notes receivable, credit accounts receivable d) debit accounts receivable, credit notes receivable

d) debit accounts receivable, credit notes receivable

petty cash voucher

is used to record the payments made from the petty cash fund. shows the voucher number, amount, purpose of the expenditure, and account to debit

bank reconciliation statement

it accounts for the differences between the balance on the bank statement and the book balance of cash

statement of account

it shows the transactions during the month and the balance owed. customers are asked to pay within 30 days of receiving the statement

cash

currency, coins, checks, money orders, and funds on deposit in a bank. most cash transactions involve checks

which of these bank reconciliation items require journal entries? a) outstanding checks b) deposits in transit c) a check properly written by the company but paid at the wrong amount by the bank d) NSF check from a customer

d) NSF check from a customer

which items are considered cash? a) currency b) funds on deposit in the bank c) money orders d) all of these

d) all of these

IMPORTANT

make journal entries to record additions and deductions that appear on the bank statement but have not been recorded in the general ledger. the data for these adjustments are in the bank reconciliation under "balance in books"

petty cash

only one person controls the petty cash fund. that person should keep receipts for all expenditures. it is an asset account

cash short or over account

record short or over amounts in this account. if credit=overage (revenue) but if debit=shortage (expense)

drawee

the bank on which a check is written

drawer

the person or firm issuing a check

payee

the person or firm to whom a check is payable

which of the following is true for the cash short or over account? a) cash short or over account is debited when there is a cash shortage b) cash short or over account is debited when there is a cash overage c) the cash short or over account has a normal debit balance d) the cash short or over account has a normal credit balance

a) cash short or over account is debited when there is a cash shortage

which of the following does not require an adjustment to the financial records? a) deposits in transit b) bank service charge c) check that was incorrectly recorded by the firm at $115 but was paid by the bank at its correct amount of $1,115 d) NSF check from a customer

a) deposits in transit

why does a payee endorse a check before depositing it? a) it is the legal process by which the payee transfers ownership of the check to the bank b) it is a form of identification verification c) the check will be paid faster by the bank if endorsed d) all of these are correct

a) it is the legal process by which the payee transfers ownership of the check to the bank

which of the following is not an example of good internal control over payments? a) make all payments from petty cash instead of using checks b) use prenumbered checks c) issue checks only with an approved bill d) have checks prepared and recorded in the accounting records by someone other than the person approving payments

a) make all payments from petty cash instead of using checks

negotiable

a financial instrument whose ownership can be transferred to another person or business.

deposit slip

a form prepared to record the deposit of cash or checks to a bank account

saras beauty salon keeps a $100 change fund. at the end of the day, sales per the register tape were $885, and the cash count was $992. what is the amount of the cash shortage or overage? a) $7 over b) $7 short c) $107 over d) $107 short

a) $7 over

electronic funds transfer (EFTs)

an electronic transfer of money from one account to another

canceled checks

are checks paid by the bank during the month. canceled checks are proof of payment. they are filed after the bank reconciliation is complete

outstanding checks

are checks that are recorded in the general journal but have not been paid by the bank

service charges

are fees charged by the banks to cover the costs of maintaining accounts and providing services, such as the use of the night deposit box and the collection of promissory notes. the debit memorandum shows the type and amount of each service charge

cash equivalents

assets that are easily convertible into known amounts of cash. short-term, liquid investments with very low risk

which of the following would be considered a cash equivalent? a) a certificate of deposit with a maturity of six months b) a certificate of deposit with a maturity of three months c) a note receivable from a customer with a maturity of six months d) a note receivable from a customer with a maturity of three months

b) a certificate of deposit with a maturity of three months

on the bank reconciliation statement, you would not find a list of: a) deposits in transit b) canceled checks c) outstanding checks d) NSF checks

b) canceled checks

which of the following is the journal entry to record the establishment of a petty cash fund? a) debit cash, credit petty cash b) debit petty cash, credit cash c) debit petty cash, credit accounts payable d) debit accounts payable, credit petty cash

b) debit petty cash, credit cash

which journal entry could be used to record the replenishment of the petty cash fund? a) debit petty cash, credit cash b) debit supplies, debit delivery expense, credit cash c) debit supplies, debit delivery expense, credit petty cash d) debit cash, credit petty cash

b) debit supplies, debit delivery expense, credit cash

on the bank reconciliation, outstanding checks should be: a) added to the balance on bank statement b) deducted from the balance on bank statement c) added to the balance in books d) deducted from the balance in books

b) deducted from the balance on bank statement

what is the term for the person or firm issuing a check? a) drawee b) drawer c) payee d) bank

b) drawer

cash account also called the

book balance of cash

the following data were taken from a firms bank reconciliation statement: book balance, $7,910; deposit in transit, $150; NSF check from a customer $200; outstanding checks, $5000; bank service charge, $10. its adjusted book balance is: a) $7,720 b) $8,120 c) $7,700 d) $8,100

c) $7,700

how would the receipt of a $62 refund for supplies returned be recorded in a general journal? the supplies were paid for with cash. a) debit cash, credit accounts payable b) debit supplies, credit cash c) debit accounts payable, credit supplies d) debit cash, credit supplies

c) debit accounts payable, credit supplies

which of the following is not an example of good internal control over cash receipts? a) cash receipts should be deposited in the bank promptly b) cash receipts should be kept in a cash register, a locked cash drawer, or a safe while they are on the premises c) the same individual who handles and records cash receipts should prepare the bank reconciliation d) cash receipts should be entered in the accounting records promptly

c) the same individual who handles and records cash receipts should prepare the bank reconciliation

debit cards are also called

check cards. they operate like cash or a personal check

credit memorandum

explains any addition, other than a deposit, to the checking account

debit memorandum

explains any deduction, other than a check, to the checking account. service charges and dishonored checks appear as debit memornadums

bank reconciliation statement format

first section: second section: bank statement balance book balance + deposits in transit + deposits not recorded - outstanding checks - deductions +/- bank errors +/- errors in the books --------------------------------------------------------------- adjusted bank balance adjusted book balance

deposit in transit

is a deposit that is recorded in the general journal but that reaches the bank too late to be shown on the monthly bank statement

restrictive endorsement (safest option)

is a signature that transfers the check to a specific party for a specific purpose, usually for deposit to a bank account. most businesses restrictively endorse the checks they receive using a rubber stamp

full endorsement

is a signature transferring a check to a specific person, business, or bank. only the person, business, or bank named in the full endorsement can transfer it to someone else

endorsement

is a written authorization that transfers ownership of a check. after the payee transfers ownership to the bank by the endorsement, the bank has a legal right to collect payment from the drawer, the person, or business who issued the check

check

is a written order signed by an authorized person, the drawer, instructing a bank, the drawee, to pay a specific sum of money to a designated person or business, the payee

promissory note

is a written promise to pay a specified amount of money on a certain date. most notes require that interest is paid at a specified rate. businesses use promissory notes to extend credit for some sales transactions

postdated check

is dated sometime in the future. if one is received, don't deposit before the date on the check. issuing or accepting postdated checks is not a proper business practice

dishonored check

is one that is returned to the depositor unpaid. normally dishonored bc there are insufficient funds in the drawers account to cover the check. bank stamps the letters NSF for not sufficient funds on the check. the business records a journal entry to debit accounts receivable and credit cash for the amount of the dishonored check

bonding

is the process by which employees are investigated by an insurance company. employees who pass the background check can be bonded; that is, the employer can purchase insurance on the employees. if the bonded employees steal or mishandle cash, the business is insured against the loss

blank endorsement

is the signature of the payee that transfers ownership of the check without specifying to whom or for what purpose. checks with a blank endorsement can be further endorsed by anyone who has the check, even if the check is lost or stolen

petty cash analysis sheet

used to record transactions involving petty cash