Unit Exam Chapter 7, 8, and 9

अब Quizwiz के साथ अपने होमवर्क और परीक्षाओं को एस करें!

FOB shipping point and FOB destination

- (FOB) shipping point: buyer pays the freight charge (the cost of shipping the goods from the seller's warehouse to the buyer's location. - (FOB) destination: seller pays the freight charges

What is returns and allowances?

- A complete record of returns and allowances - A contra expense account under cost of goods sold - Normal credit balance

Promissory Note

- A 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. - They are used by businesses to extent credit. - Also used to replace an accounts receivable balance when an account is overdue.

Internal control procedures (continued):

- Assign one person to control the petty cash fund. This person has sole control of the money and is the only one authorized to make payments from the fund. - Keep petty cash in a safe, a locked cash box, or a locked drawer. - Obtain a petty cash voucher for each payment. The voucher should be signed by the person who receives the money and should show the payment details. This provides an audit trail for the fund.

Two ways to handle the freight charges paid by the buyer

- Buyer is billed directly by the transportation company for the freight charge. - Seller pays the freight charge and includes it on the invoice.

How do we account for cash that is short or over?

- Cash tends to be short more often than over because customers are more likely to notice and complain if they receive too little change. - Cash short or over amounts are recorded in the Cash Short or Over account. - A credit balance in the account is an overage, that is treated as revenue. - Similarily, if there is a debit balance in the account, there is a shortage that is treated as an expense.

Each business must develop well-balanced credit policies:

- Credit policy that is too tight may result in both lower bad debt losses and reduced sales. - Credit policy that is too lenient may result in both higher bad debt losses and increased sales.

Advantage of handling and recording cash receipts

- Funds reach the bank sooner - cash receipts are not kept on the premises for more than a short time. - funds are safer and are readily available for paying bills owed by the firm.

Cash received on account

- Generally, a business makes sales on account and bills customers once after a specified period (month, year). - It sends a statement of account that shows the transactions during the month and the balance owed. - Checks from credit customers are journalized and posted, and then the checks are deposited in the bank.

Essential cash receipt controls

- Have only designated employees receive and handle cash. In some businesses, employees handling cash are bonded. - Keep cash receipts in a cash register, a locked cash drawer, or a safe while they are on the premises. - Make a record of all cash receipts as the funds come into the business.

Accounting for purchases:

- Most merchandising businesses purchase goods on credit under open-account arrangements. - A large firm usually has a centralized purchasing department that is responsible for locating suppliers, obtaining price quotations, negotiating credit terms, and placing orders. - In small firms purchasing activities are handled by a single individual, usually the owner or manager.

Purchase Discounts:

- Net 30 days or n/30: payment in full is due 30 days after the date of the invoice. - Net 10 days EOM, or n/10 EOM: payment in full is due 10 days after the end of the month in which the invoice was issued. - 2% 10 days, net 30 days; or 2/10, n/30: if payment is made within 10 days of the invoice date, the customer can take a 2 percent discount. Otherwise, payment in full is due in 30 days.

Types of credit sales:

- Open account credit - Business credit cards - Bank credit cards - Cards issued by credit card companies

Establishing the petty cash fund

- Petty cash funds are set up to make payments for purchases of small items like postage or supplies. - The amount of petty cash fund depends upon the needs of the business. - The cashier is responsible for petty cash.

Accounting for credit card sales

- Sales made to customers using bank credit cards, such as MasterCard and Visa are treated as cash sales - The processing fees charged by the credit card company are debited to the Credit Card Expense account.

What are the disadvantages of credit sales?

- Sales on credit will lead to increases in profit only if each customer completes the transaction by paying for the goods or services purchased. - If payment is not received, the expected profits become actual losses and the purpose for granting the credit is defeated. - Therefore, businesses need to closely analyze a customer's ability to pay before granting credit.

Credit card companies:

- Sales to customers using nonbank credit cards such as American Express and Diners Club are accounted for as sales on account. - Nonbank credit cards usually take a few days to pay the seller. - The amount remitted to the seller is net of the credit card fee.

The type of cash receipts depends on the nature of the business

- Supermarkets receive checks as well as currency and coins. - Department stores receive checks in the mail from charge account customers. - Wholesalers usually receive cash in the form of checks.

Computing Trade Discounts:

- The basic procedures used by wholesalers to handle sales and accounts receivable are the same as those used by retailers. - However, many wholesalers offer: A. Cash discounts (for customers that pay within a certain period) B. Trade discounts (a reduction from the list price) C. The amount of the trade discount may depend on the size of the order and the costs of selling to the various types of customers.

Occasionally, errors occur when making change:

- The cash in the cash register is either more or less than the cash listed on the cash register tape. - When cash receipts are more than the sales per the cash register tape, cash if over. - When cash receipts are less than the sales per the cash register tape, cash is short.

Determining the cost of purchases

- The income statement of a merchandising business contains a section showing the total cost of purchases. - This section combines information about: cost of the purchases, freight in, purchases returns and allowances, purchases discounts.

Internal control of purchases

- The objectives of the controls are to: - create written proof that purchases and payments are authorized. - ensure that different people are involved in the process of buying goods, receiving goods, and making payments.

Purchasing procedures:

- The sales department: sends an authorized purchase requisition to the purchasing department. - The purchasing department: issues an authorized purchase order and sends to the selected supplier. - Receiving report: is prepared when the merchandise is received. - The accounting department: receives the invoice and copies of the purchase order and receiving report.

Replenishing the fund

- The total vouchers plus the cash on hand should always be equal to the amount of the fund. - Replenish the petty cash fund at the end of each month or sooner if the fund is low. - A check is written to restore the petty cash fund to its original balance. - A journal entry is prepared to record the check.

Prepare a schedule of accounts receivable

- The use of an accounts receivable ledger does not eliminate the need for the accounts receivable account in the general ledger. - However, the accounts receivable account (in the genera ledger) is now considered a control account.

Internal control procedures:

- Use the petty cash fund only for small payments that cannot conveniently be made by check. - Limit the amount set aside for petty cash to the approximate amount needed to cover one month's payments from the fund. - Write petty cash fund checks to the person in charge of the fund, not to the order of "cash".

The petty cash analysis sheet

- Used to record transactions involving petty cash. - Contains two major columns: Receipt and Payments - Contains special columns such as: supplies, freight in, and miscellaneous expense. - Other accounts debit column for entries that do not fit in a special column.

The perpetual inventory system

- When the perpetual system is used, an account called Merchandise Inventory replaces all purchase related accounts. - Additionally, perpetual inventory accounting requires a second entry when sales are made.

Essential cash receipt controls (continued)

- check the funds to be deposited against the record made when the cash was received. - Deposit cash receipts in the bank promptly. Deposit the funds intact. - Enter cash receipt transactions in the accounting records promptly. - Have the monthly bank statement sent to and reconciled by someone other than the employees who handle, record, and deposit the funds.

Essential cash payment controls (continued)

- have still another person sign and mail the checks to creditors - use prenumbered check forms - during the bank reconciliation process, compare the canceled checks to the checkbook or check register. - enter promptly in the accounting records all cash payment transactions

Essential cash payment controls

- make all payments by check except for payments from special-purpose cash funds such as a petty cash fund. - issue checks only with an approved bill, invoice, or other document that describes the reason for the payment. - have only designated personnel approved bills and invoices. - have checks prepared and recorded in the checkbook or check register by someone other than the person who approves the payments.

Why balances may not equal

- other than errors, there are four reasons why the book balance (G.L. Balance) of cash may not agree with the balance on the bank statement. A. Outstanding checks B. Deposit in transit C. Service charges and other deductions not recorded in the business records. D. Deposits, such as the collection of promissory notes, not recorded in the business records.

If something is wrong with the goods sold, the firm may...

- take a sales return - give a sales allowance

What is a petty cash voucher?

A prenumbered voucher is used for good internal control.

What is a purchase allowance?

A purchase allowance is a reduction in the price of the goods.

What is the difference between a purchase requisition and a purchase order?

A purchase requisition lists the items to be ordered. A purchase order specifies the exact terms, quantity, price and credit terms.

What is a purchase return?

A purchase return is a return of unsatisfactory goods.

What is a check?

A written order signed by an authorized person instructing a bank to pay a specific sum of money to a designated person or business.

What is a Contra Revenue Account?

An account with a debit balance, which is contrary to the normal balance for a revenue account.

True or false: a credit memorandum is given in the case of a debit sale.

False; a credit memorandum is given in the case of a credit sale

Internal control of purchases (continued)

Prenumbered forms should be used for purchase requisitions, purchase orders, and checks. Periodically the numbers of the documents issued should be verified to make sure that all forms can be accounted for.

The book side of the bank reconciliation

Steps to prepare the bank reconciliation statement: - enter the balance in books from the cash account - record any deposits made by the bank that have not been recorded in the accounting records - record deductions made by the bank - record any errors in the accounting records that were discovered during the reconciliation process - compute the adjusted book balance

The bank side of the bank reconciliation

Steps to prepare the bank reconciliation statement: - enter the balance on the bank statement - compare the deposits in the checkbook with the deposits on the bank statement - list the outstanding checks - list any bank errors - compute the adjusted bank balance

What is the Freight In account?

The freight in account is an account showing transportation charges for merchandise purchased. It is also called transportation in.

What is the purchases account?

The purchases account is an account used to record cost of goods bought for resale during a period.

Format of a bank reconciliation statement

Bank statement balance +deposits in transit - outstanding checks + or - bank errors Book Balance + deposits not recorded - deductions not recorded + or - errors in the books

The Sales Returns and Allowances account is a ____ ____ account that keeps track of all customer returns and allowances.

Contra Revenue

Using online banking

Many businesses now manage a significant portion of their cash activities using online banking: - electronic funds transfers (EFT) - payments to government agencies - payments from customers - payments to vendors - deposit checks - security alerts

What is Open-Account Credit?

Open-account credit sales and business credit card sales are accounted for as sales on credit.

What are the advantages of credit sales?

The volume of both sales and profits will increase, if buyers are given a period of a month or more to pay for the goods or services they purchase.

True or false: a cash refund is given in the case of a case sale.

True


संबंधित स्टडी सेट्स

Computer Information Science ch.4

View Set

Test 3 In class Quizzes, Practice Exam 3 Questions, Group activities, Exam 3 In class review

View Set

U 3 L 1 Evolution of the Atmosphere

View Set

Chapter 9: Sleep and Biological Rhythms

View Set

Unit 4: Bipolar, Depression, + Personality Disorders NCLEX-RN questions

View Set