ACCT10002 Lecture Notes - Lecture 5: Write-Off, Cheque, Current Asset

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amaranthbadger280

19 Jun 2018

School

University of Melbourne

Department

Accounting

Course

ACCT10002

Professor

Warren McKeown

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Introductory Financial Accounting

Lecture 5: Bank Reconciliation and Receivables

Bank Reconciliation

Banks serve as a good internal control over cash through:

- Minimising cash on hand

- Provides a double record of all bank transactions (one by business and the other by bank)

- Helps company safe-guard cash through using the bank as a depository and clearing-house for

cheques received and written

Reconciling the bank account involves comparing the banks records with the firm’s ledger accounts.

Differences between these two records could be due to timing difference as well as errors (in recording

transactions). Timing differences could occur due to two things:

- Unpresented Cheque – lag between when the cheque is written and dated and the date it is paid by

the bank.

- Outstanding deposits – lag between when receipts are recorded by the business and when

recorded by the bank.

Reconciliation procedure

The reconciliation procedure involves comparing the balance per the accounting records to the bank

statement balance and to reconcile the adjusted or correct balances. This should be done by an employee

with no other responsibilities pertaining to cash. The steps in the reconciliation process involve:

1. Compare current bank statement to:

i. Previous month’s bank reconciliation, and

ii. Current month’s cash receipts and cash payments journal

iii. Outstanding deposits increase the bank account

iv. Unpresented cheques decrease the bank account

v. Adjust cashbook for dishonoured cheques and direct deposits and own errors.

vi. Examine cash journals and unticked items (outstanding deposits and unpresented cheques).

List in bank reconciliation

vii. Unticked items from opening reconciliation are carried forward to current bank

reconciliation.

Tick items that match

Correct errors in cash books

Bank statement errors added to bank reconciliation

2. Identify ‘unticked’ items on the bank statement

i. Adjust cashbook for dishonoured cheques and direct deposits and own errors.

ii. Examine cash journals and unticked items (outstanding deposits and unpresented cheques).

List in bank reconciliation

iii. Unticked items from opening reconciliation are carried forward to current bank

reconciliation.

3. Total cash journals and post to Cash at Bank ledger

4. Complete bank reconciliation

i. Outstanding deposits increase the bank account

ii. Unpresented cheques decrease the bank account

The same procedure applies with reviewing personal credit card/bank statements for

unauthorised transactions

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AASB 118 Revenue Recognition

Revenue is the income arising from the course of an entities ordinary activity.

Income is the increase in economic benefits during the accounting period in the form of inflows or

increases in assets or decreases in liabilities which raise equity- other than those contributions from equity

participations.

Major methods of increasing income include:

- Boost sales/earnings via related parties

- Premature sales recognition

- Include non-operating profits

- Treat loans as sales

- Transfers to sales instead of reserves

- Long-term contracts

- Gains and losses on sales

- Sales terminology

AASB 15 Revenue from Contracts with Customers

5 steps applying to both goods and services

1. Identify the contract with customer- both agree

2. Identify performance obligation- clearing contract

3. Determine transaction price and terms- part payment

4. The contract has commercial substance- timing and amount of cash flows will change because of

the contract

5. Probable the entity will collect the consideration to which it will be entitles from the exchange of

GS.

Revenue shall be recognised when the entity has satisfied the performance obligations. It can also be

recognised by the stage of completion, provided the following:

- Amount of revenue can be measured reliably

- Stage of completion can be measured reliably

- The costs incurred of the transaction and costs to complete the transaction can be measured

reliably

Increasing sales

Entities will offer credit terms to increase sales.

- Streamline sales process (greater convenience)

- Risk of non-payment (over-valuation of assets)

A further decision is whether to offer sales discounts to encourage prompt payment. Offered over a typical

30 day period.

Discounts offered to customers are know as ‘discount allowed’ or ‘discount expense’. Once the period

ends, net sales can be calculated and summarised.

Discount allowed is normally reported as a selling or finance expense.

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Document Summary

Banks serve as a good internal control over cash through: Helps company safe-guard cash through using the bank as a depository and clearing-house for. Provides a double record of all bank transactions (one by business and the other by bank) cheques received and written. Reconciling the bank account involves comparing the banks records with the firm"s ledger accounts. Differences between these two records could be due to timing difference as well as errors (in recording transactions). Timing differences could occur due to two things: Unpresented cheque lag between when the cheque is written and dated and the date it is paid by the bank. Outstanding deposits lag between when receipts are recorded by the business and when recorded by the bank. The reconciliation procedure involves comparing the balance per the accounting records to the bank statement balance and to reconcile the adjusted or correct balances. This should be done by an employee with no other responsibilities pertaining to cash.

Related Questions

Periodic inventory system. Each of the following four horizontal lines represents data taken from a separate multiple-step income statement. Insert the missing amounts in the space (empty box) provided. Indicate any net loss by placing brackets around the amount.

Hint: Not all parts of the income statement are shown, so be careful with your arithmetic.

	Beginning Inventory	Purchases	Cost of Goods Available for Sale	Ending Inventory	Cost of Goods Sold
a.	$180,000		$325,000	$80,000

	Sales (Revenue)	Cost of Goods Sold	Gross Profit	Operating Expenses	Net Income
b.	$240,000	$145,000			$32,000

	Revenue (Sales)	Cost of Goods Available for Sale	Ending Inventory	Cost of Goods Sold	Gross Profit	Operating Expenses	Net Income
c.	$515,000	$240,000		$145,000		$225,000	$145,000

. For each question below, circle the best answer from the choices given. (

1 : Under the periodic inventory system the purchases of merchandise are recorded at their selling prices.
a. True b. False

2 : Inventory shrinkage does not include the loss of merchandise through shoplifting.
a. True b. False

3 : Only under the periodic inventory system is a physical count of the inventory necessary.
a. True b. False

4 : It is not possible to have more inventory at the end of a period then at the beginning of a period.
a. True b. False

5) True and false. Indicate whether each of the following is True (T) or False (F). (5 POINTS)

T F 1. US Treasury bills that mature within 120 days are cash equivalents.

T F 2. Financial assets describe not just cash, but all assets that are easily and directly convertible into known amounts of cash.

T F 3. Good cash mgmt. dictates that any cash and checks received each day should be deposited the same day.

T F 4. The income statement approach to estimating Bad debts Expense emphasizes the aging of accounts receivable and the adjustment of the Allowance for Doubtful Accounts account to the level of the estimated uncollectible amount.

T F 5. When I use the allowance method for accounts receivable, I will recognize a Bad Debt Expense at the same time the account is taken off the Accounts Receivable Subsidiary Ledger.

. For each question below, circle the best answer from the choices given.

1. Which of the following items would cause the ending balance on the bank statement to be larger than the ending balance of cash shown in the accounting records (checkbook)?

A) Bank service charges.

B) Deposits in transit.

C) Outstanding checks.

D) NSF check from one of the depositor's customers.

2. When a bank reconciliation has been satisfactorily completed, the only related entries to be made in the companyâs records are:

A) To correct errors made by the bank in recording the dollar amounts of cash transactions during the period.

B) To reconcile items explaining the difference between the balance per books and the balance per bank stmt.

C) To record outstanding checks and bank service charges.

D) To record items explaining the difference between the balance per accounting records and the adj. cash bal.

3. The Allowance for Doubtful Accounts represents:

A) Cash set aside to make up for bad debt losses.

B) The amount of uncollectible accounts written off to date.

C) The difference between total credit sales and collections on credit sales.

D) The difference between the face value of A/R and the net realizable value of A/R.

4. In preparing a bank reconciliation, a service charge shown on the bank statement should be:

A) Added to the balance per the bank statement.

B) Deducted from the balance per the bank statement.

C) Added to the balance per the depositor's records.

D) Deducted from the balance per the depositor's records.

5. During preparation of a bank reconciliation, outstanding checks should be:

A) Added to the balance per the bank statement.

B) Deducted from the balance per the bank statement.

C) Added to the balance per the depositor's records.

D) Deducted from the balance per the depositor's records.

Bank reconciliation. Indicate what effect each situation will have on the bank reconciliation process (Match the situation with the bank reconciliation process below by placing the number of the process next to the situation). Note that there are more situations than processes, so some processes may be used more than once, but not all processes have to be used. Only one process is required for each situation. Hint: Determine if Cash is increasing or decreasing

Process

Deduct from bank balance 2. Add to bank balance

3. Deduct from checkbook balance 4. Add to checkbook balance

Situation

_______ Bank received $2,750 from one of your customers (Terms: Cash in advance)

_______ Bank collection (wire) fee was $15

_______ Check number 111 was outstanding for $55

_______ A $400 check was written, but recorded on the books as $40

_______ Interest received from your bank for the month was $16.55

ceriseraccoon894

Solve the following QS and Exercises from your textbook in chapter 8.

QS 8-1

Internal control objectives

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.

____	1.	Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud.
____	2.	The primary objective of internal control procedures is to safeguard the business against theft from government agencies.
____	3.	The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft.
____	4.	Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself.

QS 8-2

Cash and equivalents

Choose from the following list of terms/phrases to best complete the following statements.

a.	Cash
b.	Cash equivalents
c.	Outstanding check
d.	Liquidity
e.	Bank reconciliation
f.	Current assets

____	1.	The category includes currency and coins along with amounts on deposit in bank accounts, checking accounts, and savings accounts.
____	2.	The term __________ refers to a companyâs ability to pay for its near-term obligations
____	3.	The __________ category includes short-term highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes.

QS 8-3

Internal control for cash

A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.

____	a.	A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly.
____	b.	A voucher system of control is a control system exclusively for cash receipts.
____	c.	A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records.
____	d.	A petty cash system is not a control procedure for safeguarding cash.

QS 8-4

Petty cash accounting

The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the fund contained $28 and had the following receipts: film rentals, $24; refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period.

Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry.

____	a.	Fund amount is being reduced
____	b.	Fund amount is being increased
____	c.	Fund is being eliminated
____	d.	Fund is being established

Exercise 8-13^A

Documents in a voucher system

Match each document in a voucher system in column one with its description in column two.

Document

1.	Purchase requisition
2.	Purchase order
3.	Invoice
4.	Receiving report
5.	Invoice approval
6.	Voucher

Description

____	A.	An itemized statement of goods prepared by the vendor listing the customerâs name, items sold, sales prices, and terms of sale.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	C.	A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms.
____	D.	A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.
____	E.	A document used by department managers to inform the purchasing department to place an order with a vendor.
____	F.	A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.

Exercise 8-14^B

Record invoices at gross or net amounts

Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.

Oct.	2	Purchased merchandise at a $3,000 price, invoice dated October 2, terms 2/10, n/30.
	10	Received a $500 credit memorandum (at full invoice price) for the return of merchandise that it purchased on October 2.
	17	Purchased merchandise at a $5,400 price, invoice dated October 17, terms 2/10, n/30.
	27	Paid for the merchandise purchased on October 17, less the discount.
		31Paid for the merchandise purchased on October 2. Payment was delayed because the invoice was mistakenly filed for payment today. This error caused the discount to be lost. Please provide all the answer thank you

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ACCT10002 Lecture Notes - Lecture 5: Write-Off, Cheque, Current Asset

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