What is cash?
(1) Currency
(2) Certified checks, personal checks
(3) Demand deposits (e.g., checking account, savings account)
Is Canadian Tire money considered cash?
No it is a coupon
Is bitcoin considered cash?
Not from an accounting standpoint. It is considered to be an intangible asset
Suppose you receieve postdated (for a later date) checks today. Are they cash or accounts receivable?
Accounts receivable. It is considered A/R until the posdated date
If you receieve a check on a date before the current date what is the check considered as?
As cash
Suppose that you receieves NSF (non-sufficient fund) checks? Are they cash or account receivables?
Accounts receivable
Whar are NFS checks?
Also known as bounced checks. These are checks that are not paid by a bank, because there are insufficient funds in the bank account of the customer who wrote the check.
Periodic balance account for NFS?
(1) Get check: (Dr) Cash (Cr) Revenue
(2) NSF: (Dr) A/R (Cr) Cash
Are bank overdrafts assets or liabilities?
Liabilities since we owe money to the bank
What are bank overdrafts?
Let’s say you have 2000 in debit account. If you spend more than 2000 dollars (e.g., 2500) when you only have 2000 then bank overdraft happens.
As at the end of the fiscal year, if the use of cash is resricted for more than a year, it is a current or non-current asset?
Non-current
What does bank reconciliation ensure?
That any differences between a company’s accounting records for cash and the bank records are identified and explained
What are reasons for differences between a company’s accounting records for cash and the bank records
Time lags
errors
Assume that end of year is December 31 and we do the bank reconciliation process on December 31 when we close the book for the year. Is the following an adjustment item from the book balance or from the bank balance? On December 30, you receieve a 100 cheque from your customer, and you plan to deposit this cheque on January 1. (Deposit in transit)
When credit sale happens on Dec 29 then A/R goes up and revenue goes up
On Dec 30: Cash collection: Cash increases A/R goes down
Bank is not aware that you receieved a checque so we need to add 100 dollars to bank statement. Because bank reconciliation happens at the end of the year we do not increase cash from the company’s book.
So from the bank balance
On December 30 you wrote a 50 cheque to your supplier, but your supplier plans to deposit this cheque on January 1 (outstanding cheque). Is the following adjustment item from the book balance or from th ebank balance?
On Dec 30: Investment goes up and cash goes down
On Dec 31 bank reconciliation, we have already decreased cash so there is not adjustment needed. We gave the cheque to supplier so have already decreased cash. But for bak statement cash, the supplier is still holding onto the cheque and the banker does not know we gave the cheque to someone else. We need to make a -50 adjustment in the bank balance
So from the bank balance.
When should an adjustment happen from bank statement?
When company knows what happens but bank does not
On December 29, you receieve a 70 cheque from your customer, and you deposited this cheque on December 30. On December 20, your bank made a mistake of increasing cash by 10 incread of 70 for this accounting event (Bank errors). Is this adjustment item from the book balance or bank balance?
On Dec 29: Cash goes up and Revenue goes up
The bank made a mistake so we need to correct this from the bank balance
So from the bank balance
On December 30, your customer wire-transferred 100 to your bank account. Your customer did not tell you about it at all. On December 31, you realize this collection of cash when you looked at the bank statement during the bank reconciliation process (Electronic fund transfer). This this an adjustment item from the book balance or from the bank balance?
From your point of view you are surprised since you did not knowa about this. Hence this would be an adjustment from the company’s book balance
On December 31, you realize that your bank charged 15 hidden feed to your bank account when you looked at the bank statement during the bank reconciliation process. Is this an adjustment from the book balance or from the bank balance?
From the book balance.
We need to decrease cash during bank reconciliation process. Assumption is we did not know about this hidden fee and only realized when we looked at the bank statement during the bank reconciliation process.
On December 29, you receieved a 500 cheque from your customer. On December 30, you deposited this cheque in your bank account. On December 31, you realized that this cheque was bounced (=Not valid) due to the insufficient fund from your customer because your customer just went bankrupt on December 30 (NSF). Is this an adjustment item from the book balance or from the bank balance?
You realize this cheque is bad during bank reconciliation process. We increased cash wrongly on December 29 but when we realized the cheque was NSF at December 31 during bank reconciliation we realize the cash needs to be decreased since journal entry was incorrect. At same time we establish A/R. So from the book balance.
On December 29, you receieved a 10 cheque from your customer, and you deposited this cheque on December 30. On December 29 your accoutnant made a mistake of increasing cash by 70 incread of 10 for this accounting event (Company errors). Is this an adjustment item from the book balance or from the bank balance?
During the msitake you increaase cash and decrease A/R. During the bank reconciliation on December 31 you realize you’ve made a mistake so the adjustment is from the book balance.
When is an adjustment made from the book balance?
When the company does not know but the bank knows. In this case the company needs to make adjusting and correcting entries.
In a bank reconciliatin, deposits in transit are?
Added to the bank balance
The reconciling item in a bank reconciliation that will result in an adjusting entry by the firm is?
Bank service and hidden fees
