 | Term | Definition |
| |
Bank statement |
summary of the activity in a bank account sent each month to account holder |
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bank reconciliation |
comparison between the cash balance in the firm's accounting records and the cash balance on the bank statement to identify errors |
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deposit in transit |
bank deposit the firm has made but is not included on the months bank statement because the deposit did not reach the bank's record keeping dept. in time to be included on the current statement |
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outstanding check |
a check the firm has written but has not yet cleared the bank |
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bank statement adjustments |
1) deduct outstanding checks 2) add deposits in transit 3) correct for any bank errors |
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checkbook(GL) adjustments |
1) deduct NSF checks 2) deduct bank service charges 3) add interest earnings 4) add collections made by bank on customers behalf 5) add miscellaneous credits 6) deduct miscellaneous charges 7) correct for any account holder's errors |
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cash equivalents |
higly liquid investmentswith a maturity of 3 months or less that a firm can easily convert into a know amount of cash |
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accounts recievable |
a current asset that arises from sales on credit; also the total amount customers owe the firm |
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allowance method |
a method of accounting for bad debts in which the amount of the uncollectible accounts is estimated at the end of each accounting period |
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bad debt expense(BDE) |
the expense to record uncollectible accounts receivable |
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allowance for uncollectible accounts |
is a contra-asset account, the balance of which represents the total amount the firm believes it will not collect from its total accounts receivable |
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direct write off method |
is a method of accounting fro bad debts in which they are recorded as an expense in the period in which they are identified as uncollectible |
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promissary note |
written promise to pay a specified amount of money at a specified time |
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accounts receivable (AR) turnover ratio |
a ratio that measures how quickly a firm collects its accounts receivable. it is defined as credit sales divided by average accounts receivable |
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cash is |
the most popular theft target |
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obectives of sales/collection cycle |
1. sell to customers that will pay their bills 2. assure that goods/services are what the customer ordered 3. assure that customers are properly billed 4. assure that cash receipts are properly deposited |
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