Cash and banking, notes and interest, uncollectables

Question 1

1.Commercial paper
-“draws on funds” in a bank
2. Source document recorded by the drawer

Answer 1

1.Check
2. Check stub

Question 2

A bank form that lists cash item and checks to be deposited

Answer 2

Deposit ticket / deposit slip

Question 3

Process a drawer goes through to figure out how much money is in an account at one time
-Determines the corrected cash balance

Answer 3

Bank reconciliation

Question 4

Itemized listing prepared by the bank of additions and subtractions from accounts

Answer 4

Bank statement

Question 5

What are the steps to reconcile a bank statement?

Answer 5

1. Trace outstanding items for the previous month
2. Compare the deposits
3. Compare the checks issued
4. Scan the bank statement for changes and credits we missed
   -inflows
   -outflows

Question 6

What does it mean to trace outstanding items in the bank reconciliation process?

Answer 6

Did all the problem makers from the last reconciliation get cleared up?

Question 7

What does it mean to compare deposits in the bank reconciliation process?

Answer 7

Did all of the deposits make it onto the bank statement?

Question 8

Deposits that have been made and added to the depositor’s checkbook but have not yet been listen on the bank statement

Answer 8

Deposits in transit

Question 9

What does it mean to compare the checks issued in the bank reconciliation process?

Answer 9

Did all written checks get removed, cleared, and show up as a deduction on the bank statement?

Question 10

Checks that have been drawn and subtracted from the depositor’s checkbook but have not yet been presented to the bank for payment.
-The check is cashed much later
-Already deducted from T chart, not yet deducted from bank statement

Answer 10

Outstanding check

Question 11

A check not paid by the bank when properly presented
-lack of funds, forgot to sign, filled out incorrectly
-Already subtracted from T chart, not bank statement
-Can either erase from the T chart or cancel the check and write a new one

Answer 11

Dishonored check

Question 12

A check which has been paid by the bank and is returned to the drawer for record keeping
-Already subtracted from T chart and bank

Answer 12

Canceled check

Question 13

What does it mean to scan the bank statement for changes and credits we missed in the bank reconciliation process?

Answer 13

To scan the bank statement for changes not yet reflected on the general ledger cash T account

Question 14

Items the bank deducts from the account balance
-Items that the bank records as cash disbursements (subtracted) to the bank account balance but not yet recorded in the GL cash balance
-Already recorded as deduction to bank statement but not to T chart

Answer 14

Debit memorandum

Question 15

Items the bank records as a cash receipt (adds) to the bank account balance, but not yet recorded in the general ledger cash T account balance
-Already recorded on the bank statement but not in the T account

Answer 15

Credit memorandum

Question 16

An order by a depositor requesting a bank not to pay on a check previously issued

Answer 16

Stop payment order

Question 17

The issuance of a check without sufficient funds in the account when it is presented for payment

Answer 17

Overdraft

Question 18

An amount written with the digits in the incorrect order

Answer 18

Transposition error

Question 19

A written promise made by a person or business to pay a certain sum of money to another person or business at a specified time in the future

Answer 19

Promissory note

Question 20

Date on which payment is due on a promissory note

Answer 20

Maturity date

Question 21

What is the equation used to calculate interest?

Answer 21

Interest = Principle x Rate x Time

Question 22

Interest formula”
1. The face note of a promissory note upon which interest is computed (how much is owed at this point in time?)
2. The annual percentage rate used to compute interest
3. The period of time from the date of the note to the maturity date (APR)

Answer 22

1. Principal
2. Rate
3. Time

Question 23

What is the APR for a monthly repayment frequency?

Answer 23

1/12

Question 24

There are two methods used to write off accounts deemed uncollectable, what are they?

Answer 24

1. The direct write off method
2. The allowance method

Question 25

There are two accounts used to account for uncollectibles, what are they?

Answer 25

1. Bad debt expense
2. Allowance for doubtful accounts

Question 26

An expense account for accounts receivable that are uncollectable

Answer 26

Bad debt expense

Question 27

What account does the Bad debt expense account offset?

Answer 27

Revenue

Question 28

Directly writes off the account receivable when we acknowledge that it will not be collected
-Only use the bad debt expense
-Directly credit A/R

Answer 28

Direct write off method

Question 29

A contra-asset account utilized to accumulate totals against accounts receivable

Answer 29

Allowance for doubtful accounts

Question 30

An account used to offset/ contradict the value of another related account

Answer 30

Conta account

Question 31

Use of a contra account to offset A/R

Answer 31

The allowance method