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42 Cards in this Set
- Front
- Back
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Internal Control |
Protects assets from misuse, aid management in achieving goals, ensures information -5 elements 1.Control Environment (Ethics) 2. Risk Assessment 3. Control Procedures 4. Monitoring 5. Information and Communication
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Internal Auditors |
Monitor internal control |
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Bank Reconciliation |
Part of Internal Control system; Prepared to explain any differences between company's book balance and bank balance |
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Which items from the bank reconciliation need a JE? |
Anything added to the book side (company side) |
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EFT: |
Electronic funds transfer; Companies encourage customers to use this because its cheaper, faster, and safer |
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Deposits in Transit (Bank Reconciliation) |
Already recorded on our book, but it didn't go through the bank side yet; ADD to bank side
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Outstanding Checks (Bank Reconciliation) |
Checks that have not cleared the bank yet; already recorded (deducted) on our side; DEDUCT from bank side |
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NSF (Insufficient Funds) Checks (Bank Reconciliation) |
Ex. A check from a customer for $300 was returned by the bank because of NSF as indicated by a debit memo; DEDUCT from our side; must record JE |
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Bank Service Charge (Bank Reconciliation) |
Random charge by the bank; DEDUCT from our side; must record JE |
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Note Receivable (Bank Reconciliation) |
Ex. A credit memo on the bank statement indicates that the bank collected a note in the amount of $400 and the related interest for $8; ADD to our side; must record JE |
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Compensating Balance |
Banks may require that companies maintain minimum cash balances in their bank accounts |
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Petty Cash |
Special cash fund-used for small amounts -the only time petty cash is debited is when the fund is initially established or when the fund is increased -the only time petty cash is credited is when the fund is being decreased
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What does the JE look like when a petty cash fund is established? |
Petty Cash 500 Cash 500 |
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What is the JE to reimburse petty cash fund? |
Office Supplies 300 Store Supplies 200 Misc. Expense 100 Cash 600 |
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Notes Receivable (Account) |
Written document containing a promise to pay -On the balance sheet as an asset |
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Trade Receivable |
Notes and accounts receivable that result from sales transactions are sometimes called this |
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JE to record receipt of note receivable |
Notes Receivable 10000 Accounts Receivable 10000 |
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Face Value of Note |
Initial or principal amount of credit provided |
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How to calculate maturity value: |
Original Amount+Interest
Interest=Original amount X percent as decimal X amount of time (30 days= 30/360)
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JE for Dishonored Note |
Note and Interest transferred to the customers account
Accounts Receivable 6060 Notes Receivable 6000 Interest Revenue 60 |
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Net Realizable Value of Accounts Receivable |
Total Accounts Receivable-Allowance for Doubtful Accounts |
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2 Methods of Accounting for Uncollectible Receivables |
1. Direct Write Off Method: Records bad debt expense only when an account is determined worthless (not used by GAAP; does not follow matching principle) 2. Allowance Method: Records bad debt expense by estimating uncollectible accounts at the end of the accounting period (used by GAAP) |
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Percentage of Credit Sales Method |
Credit sales for the year X Bad debt loss rate(%)=Bad Debt Expense for this Year |
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Allowance Method |
The company estimates that a total of $30,000 of the $200,000 balance of their accounts receivable will eventually be uncollectible
Bad Debt Expense 30,000 Allowance for Doubtful Accounts 30,000 |
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Allowance for Doubtful Accounts |
Contra Asset Account; Represents the total estimated customer accounts that will be uncollectible (specific customer accounts are unknown); Normal Credit Balance |
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JE to write off account that will not be paid(uncollectible) |
The account of $6000 is written off because it is uncollectible
Allowance for Doubtful Accounts 6000 Accounts Receivable 6000
**the allowance account credited earlier is debited at the write off |
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JE to reinstate previously written off receivable
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**Reinstatement entries reverse the write off entry
Accounts Receivable 6000 Allowance for Doubtful Accounts 6000
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JE to record collection after reinstatement |
Cash 6000 Accounts Receivable 6000
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Accounts Receivable Turnover |
Measures how frequently during the year the accounts receivable are being converted to cash
Net Sales --------------------------- Average Accounts Receivable |
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Number of Days' Sales in Receivables |
Estimate of the length of time the accounts receivable have been outstanding
Average Accounts Receivable -------------------------------------------- Average Daily Sales |
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Maturity Value |
The amount that must be paid at the due date of the note; sum of face amount plus interest |
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Accumulated Depreciation |
Contra Asset |
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Revenue Expenditures |
Expenditures that benefit only the current period (repairs and maintenance); expensed |
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Capital Expenditures |
Expenditures that improve the asset or extend its useful life; capitaliuzed |
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Book Value |
Cost or value of asset less accumulated depreciation |
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JE to sell equipment |
JE to update the depreciation:
Dep. Expense 750 Accumulated Dep. 750 |
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Disposal or Selling of Tangible Assets |
Cash > BV, record as a gain (credit) Cash < BV, record as a loss (debit) Cash=BV, no gain or loss |
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Costs included in Acquisition Cost of an Asset |
Purchase price and all expenditures needed to prepare asset for its intended use; does not include financing charges |
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Residual Value |
What the asset is expected to be worth at the end of its useful life |
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Straight Line Depreciation |
Most widely used Annual Depreciation= Cost-Estimated Residual Value --------------------------------------------- Estimated Life |
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Units of Production Depreciation |
Depreciation per unit= Cost-Residual Value -------------------------------- Total Units of Production |
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Depreciable Cost |
Cost-Residual Value |
