SLIDES WEEK 4 Flashcards
(30 cards)
POS terminal
Handles all types of payments, cash, card, mobile, etc.
One specific employee is made responsible for the petty cash fund.
cash fund custodian
minimum and maximum petty cash
A petty cash fund has both a minimum and a maximum amount.
When cash in the fund drops to the minimum, the fund is replenished—cash is added back to bring it up to the maximum level.
During daily use, no journal entries are made for each small expense.
Only when replenishing the fund does the organization:
Record all the small expenses that were paid.
Add cash to refill the fund.
At the end of the accounting period, the fund is always replenished to reflect all expenses
When are petty cash expenses recorded in the books?
Only at the moment of replenishment, not when each expense occurs.
What happens when the petty cash fund reaches its minimum amount?
The fund is replenished with enough cash to return it to its maximum amount.
Are there journal entries for each small expense made from the petty cash fund?
No, journal entries are only made when the fund is replenished.
When is the petty cash fund always replenished?
At the end of the accounting period.
When is the petty cash fund debited?
Only when the fund is first established or increased.
debit petty cash
credit cash
when do you inly use petty cash
when you’re creating the petty cash fund
What types of accounts are debited when replenishing the petty cash fund?
The actual expense accounts (e.g., Freight-out, Marketing, Miscellaneous)
In the example, if €2,000 was spent on shipping, €500 on marketing, and €250 on dinners, what is the correct entry?
Dr Freight-out €2,000
Dr Marketing €500
Dr Miscellaneous €250
Cr Cash €2,750
Cash Over and Short
an income statement account (a sort of expense)
- A debit balance indicates a net cash shortfall.
- A credit balance indicates a net cash oversupply.
the use of petty cash funds nowadays
because of contemporary technology the need for petty cash fund has reduced
Checks
written orders signed by an account holder directing the bank to pay a specified sum of money to a designated recipient.
where are bad debt reported in this formula
Net revenues
- Cost of goods sold
Gross profit
Bad debt expenses are reported here
1. Cash and cash equivalents
2. Accounts receivable
3. Uncollectible accounts
4. Selling accounts receivable
5. Notes receivable
6. Presentation of receivables
7. Wrap-up
- Operating expenses
Operating income/Income from operations
- Other income and expenses Net income before taxes
- Taxes
Net income after taxes
operating expenses
does a bad debt expense increase or decrease a company’s net income
decrease
direct write off method; Labsupplies International Ltd. sold supplies worth £1,400 to Lancaster Chemicals on February 6, credit terms 3/5, n/30. On August 22 Labsupplies International Ltd. learns that Lancaster Chemicals filed for bankruptcy on July 16. It writes off the open invoice.
Dr bad debt expense
Cr accounts receivable
Direct write-off method disadvantages
does not achieve matching of revenues and expenses!
does not lead to accounts receivables being reported at the amount the company actually expects to receive!
Allowance for doubtful accounts is a contra account to
accounts receivable
Statement of financial position
Accounts receivable X
Allowance for doubtful accounts (Y)
——————————
Net accounts receivable X-Y
how to make an estimation for allowance for doubtful accounts
percentage of receivables method
Factoring (Selling Receivables)
A company sells its accounts receivable (money customers owe them) to a factoring company for immediate cash — minus a fee. (creditcard companies)
Why se sales of receivables?
- To get cash faster (improves liquidity)
- Avoid time & cost of collecting from customers
Advantages to retailer of the use of credit card companies
- Issuer does credit investigation of customer.
- Issuer maintains customer accounts.
- Issuer undertakes collection and absorbs losses.
- Receives cash more quickly.
