ACC M115 Lecture Notes - Lecture 5: Deferral, Promissory Note, Accounts Payable

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24 Sep 2020

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Document Summary

The account is the storage unit for data. The specific accounts used by a company depend on the nature of the business. Each company must utilize accounts in a way that reflects the nature of its business and the needs of its management. There are accounts that are commonly used by most businesses. A listing of accounts used by the business is called a chart of accounts. Within each category there are a number of accounts generally, the larger the company the larger the number of accounts within the category. Within the stockholder"s equity category there are two subcategories: asset accounts (a category) Cash is the account used to record increases and decreases in cash. Cash consists of money or any medium of exchange that banks accept at face value for deposit. Coins, currency (folding money), checks, money orders and money on deposit in the bank are all considered cash. The cash account also includes cash on hand.

Related Questions

Assume you serve on the board of a localgolf and country club. In preparation for renegotiating theclub%u2019s bank loans, the president indicates that the club needsto increase its operating cash flows before the end of the currentyear. The club%u2019s treasurer reassures the president and otherboard members that he knows a couple of ways to boost theclub%u2019s operating cash flows. First, he says, the club can sellsome of its accounts receivable to a collections company that iswilling to pay the club $97,000 up front for the right to collect$1 00,000 of the overdue accounts. That will immediately boostoperating cash flows. Second, he indicates that the club paid about$200,000 last month to relocate the 18th fairway and green closerto the clubhouse. The treasurer indicates that although these costshave been reported as expenses in the club%u2019s own monthlyfinancial statements, he feels an argument can be made forreporting them as part of land and land improvements (a long-livedasset) in the year-end financial statements that would be providedto the bank. He explains that, by recording these payments as anaddition to a long-lived asset, they will not be shown as areduction in operating cash flows.

Required:

1. Does the sale of accounts receivable togenerate immediate cash harm or mislead anyone? Would you considerit an ethical business activity?

2. What category in the statement of cash flows is used whenreporting cash spent on long-lived assets, such as landimprovements? What category is used when cash is spent on expenses,such as costs for regular upkeep of the grounds?

3. What facts are relevant to decidingwhether the costs of the 18th hole relocation should be reported asan asset or as an expense? Is it appropriate to make this decisionbased on the impact it could have on operating cash flows?

4. As a member of the board, how would you ensure that anethical decision is made?

Evaluating The policies and procedures used to safeguard assets,ensure accurate business information, and ensure compliance withlaws and regulations.Internal Control of Coins, currency (papermoney), checks, money orders, and money on deposit that isavailable for unrestricted withdrawal from banks and otherfinancial institutions.Cash

The following procedures were recently installed by RaspberryCreek Company:

1)After necessary approvals have been obtained for the paymentof a A special form for recording relevant data about a liabilityand the details of its payment.voucher, the treasurer signs andmails the check. The treasurer then stamps the voucher andsupporting documentation as paid and returns the voucher andsupporting documentation to the accounts payable clerk forfiling.

2)The accounts payable clerk prepares a voucher for eachdisbursement. The voucher along with the supporting documentationis forwarded to the treasurer's office for approval.

3)Along with petty cash expense receipts for postage, officesupplies, etc., several postdated employee checks are in the Aspecial cash fund to pay relatively small amounts.petty cashfund.

4)At the end of the day, cash register clerks are required touse their own funds to make up any cash shortages in theirregisters.

5)At the end of each day, all cash receipts are placed in thebank's night depository.

6)At the end of each day, an accounting clerk compares theduplicate copy of the daily cash deposit slip with the depositreceipt obtained from the bank.

7)All mail is opened by the mail clerk, who forwards all cashremittances to the cashier. The cashier prepares a listing of thecash receipts and forwards a copy of the list to the accountsreceivable clerk for recording in the accounts.

8)The The analysis that details the items responsible for thedifference between the cash balance reported in the bank statementand the balance of the cash account in the ledger.bankreconciliation is prepared by the cashier, who works under thesupervision of the treasurer.

Required:

Indicate whether each of the procedures of internal control overcash listed above represents (1) a strength or (2) a weakness.

13.
value:
4 points

What would be the appropriate entry for the followingtransaction?
Bill Co. performed $5,200 in consulting services on account

1.Credit to Cash, Debit to Accounts Receivable

2.Debit to Revenue, Debit to Cash

3.Debit to Accounts Receivable, Credit to Cash

4.Debit to Revenue, Credit to Cash

5.Debit to Accounts Receivable, Credit to Revenue

14.
value:
4 points

Which of the following is the appropriate journal entry if acompany performs a service and then bills the customer?

1.Debit to Cash, Debit to Revenue

2.Debit to Cash, Credit to Revenue

3.Debit to Accounts Receivable, Credit to Cash

4.Debit to Revenue, Credit to Accounts Receivable

5.Debit to Accounts Receivable, Credit to Revenue

15.
value:
4 points

Of the following accounts, the one that normally has a creditbalance is:

1.Cash

2.Office Equipment

3.Sales Salaries Payable

4.Dividends

5.Sales Salaries Expense

16.
value:
4 points

For what reason do most sellers require customers to have theirreceipts in order to exchange or return purchased items?

The receipt contains coded information which the seller needs toprepare and analyze the trial balance.

Sellers wish to ensure that the sale in question was rung up on theregister in the first place.

This is a legal requirement mandated by a federal law.

The receipt is serving as a promissory note.

To create an environment in which customer's do not want to returnitems.

17.
value:
4 points

A ledger is:

A record containing increases and decreases in a specific asset,liability, equity, revenue or expense item

A journal in which transactions are first recorded

A collection of documents that describe transactions and eventsduring the accounting process

A list of all accounts with their debit balances at a point intime

A list of all accounts a company uses and includes anidentification number assigned to each account

18.
value:
4 points

Stride Rite has total assets of $425 million. Its total liabilitiesare $110 million. Its equity is $315 million. Calculate the debtratio.

38.6%

13.4%

34.9%

25.9%

14.9%

19.
value:
4 points

The accounting process begins with:

Analysis of business transactions and events

Preparation of financial statements and other reports

Summarizing the recorded effects of business transactions

Presentation of financial information to decision-makers

Preparation of the trial balance

20.
value:
4 points

Which of the following statements is correct?

When a future expense is paid in advance, the payment is normallyrecorded in a liability account called Prepaid Expense

Promises of future payment are called accounts payable

Increases and decreases in cash are always recorded in the retainedearnings account

An account called Land is commonly used to record increases anddecreases in both the land and buildings owned by a business

Accrued liabilities include accounts receivable

21.
value:
4 points

The adjusted trial balance contains information pertainingto:

Asset accounts only

Balance sheet accounts only

Income statement accounts only

All general ledger accounts

Revenue accounts only

22.
value:
4 points

A classified balance sheet:

Measures a company's ability to pay its bills on time

Organizes assets and liabilities into important subgroups

Presents revenues, expenses and net income

Reports operating, investing and financing activities

Reports the effect of profit and dividends on retainedearnings

23.
value:
4 points

If accrued salaries were recorded on December 31 with a credit toSalaries Payable, the entry to record payment of these wages on thefollowing January 5 would include:

A debit to Cash and a credit to Salaries Payable

A debit to Cash and a credit to Prepaid Salaries

A debit to Salaries Payable and a credit to Cash

A debit to Salaries Payable and a credit to Salaries Expense

No entry would be necessary on January 5

24.
value:
4 points

If a company records prepayment of expenses in an asset account,the adjusting entry would:

Result in a debit to an expense and a credit to an assetaccount

Cause an adjustment to prior expense to be overstated and assets tobe understated

Cause an accrued liability account to exist

Result in a debit to a liability and a credit to an assetaccount

Decrease cash

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ACC M115 Lecture Notes - Lecture 5: Deferral, Promissory Note, Accounts Payable

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