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Financial Accounting Week 5

The document provides information about an accounting course including an upcoming quiz, reading and homework assignments for upcoming weeks, cash and cash equivalents definitions, a cash reconciliation example, and a statement of cash flows example. It includes details about recording transactions under different payment methods and reconciling a bank statement to the company's cash ledger.

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98 views

Financial Accounting Week 5

The document provides information about an accounting course including an upcoming quiz, reading and homework assignments for upcoming weeks, cash and cash equivalents definitions, a cash reconciliation example, and a statement of cash flows example. It includes details about recording transactions under different payment methods and reconciling a bank statement to the company's cash ledger.

Uploaded by

chapmanalexis73
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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QUIZ 1 (chapters 1 – 3) 15 points (45-minutes)

Opens Feb 4, at 12:00 AM; Due and closes Feb 7 at 11:59PM


Week 5 Prepare for the week:
5-Feb Chapter 4: Read pages 176 – 203; and Ch 11: 542 -548
7-Feb WATCH the chapter 4 videos
9-Feb In class
Chapter 4: Cash and Internal Controls
Due this week
VLN 4 due by 2/7 at 11:59 PM
Chapter 4 Guided Practice (in CONNECT) due by 2/7 at 11:59 PM
Class Problem (CP4) submitted in Canvas due by 2/9 at 11:59 PM
Chapter 4 homework due on 2/10 by 11:59 PM
Use the McGrawHill extra practice problems, for review.

Week 6 In class: EXAM 1 (chapters 1 – 3) Total: 150 points


12-Feb
14-Feb
Part 1 on 2/14 (100 pts multiple choice)
16-Feb Part 2 on 2/16 (50 pts homework type)

Chapter 4

Cash and Cash Equivalent


Cash equivalent—SHORT TERM INVESTEMENT WITH ORIGINAL MATURITY OF THREE MONTHS
OR LESS (91 DAYS OR LESS)

Item Cash, Cash equivalent or Neither


Supplies Neither- supplies (CA)
Company bank accounts Cash
Checks received from customers Cash
Accounts receivable Neither - A/R (CA)
3-month certificate of deposit Cash Equivalent
6-month Treasury Bill Neither--- short term investment
(CA)
Cash Equivalent- US Treasury Bills, Certificate of Deposit, Commercial Paper
Original Maturity means the day they bought it

Page 1
ALWAYS RECORD REVENUE (THE SALE or SERVICE) AT THE AGREED UPON PRICE

See page 4-3 in notes

The company provided $1,000 of merchandise to a customer. The company is charged a 3% fee
for credit card purchases and 1% fee for debit card purchases.
Determine the amount of cash and revenue to record when the:

Cash Revenue
(a) Customer purchased with their Mastercard. $970 $1,000
(b) Customer purchased on account 0 1,000
(c) Customer purchased with a debit card. 990 1000
(d) Customer purchased with a check. 1000

Record (a)
Cash 970
Service Fee 30
Sale 1,000

Record (b)
Accounts receivable 1,000
sale 1,0001

Record (d)
cash 1000
sale 1000

From the payment methods above, what is different, what is the same?
it does no matter how the customer pays the revenue is the revenue

Page 2
From page 4-4 of the Video Lecture Outline
Bank reconciliation framework…do this every time.

reconcile means equal , use this format this is the short cut
outstanding means the bank doesn't know about it

Bank Account (Statement) v. Company Cash Account (Ledger)


Bank’s record of company account at bank Company’s record of company account at
bank
+/- items that are recorded in Company Cash +/- items that are recorded on the Bank
account (ledger) but HAVE NOT been Statement but HAVE NOT been recorded in
recorded on the Bank statement. Examples: the Company Cash account (ledger). For
example:
- outstanding checks +Notes received/collected by bank
+ outstanding deposits (deposits in transit) +Interest received
-NSF checks
-unrecorded debit cards and EFTs
-Bank service fees
Fix errors where they exist Fix errors where they exist
The goal is to get both to be the same (by including everything);
they both represent the Company’s bank account.

Page 3
Reconciliation of the Bank Statement and the Cash Account (Ledger)

Added to bank statement balance (add bank)


Subtracted from bank statement balance (sub bank)
Added to company cash ledger balance (add ledger)
Subtracted from company cash ledger balance (sub ledger)
Reconciling item Add/Sub
Bank/Ledger
Bank error, charged company too much bank add back
Bank service fee sub ledger
Cash receipt yet to be deposited --- outstanding deposit add bank
Company error, wrote check for $100 subtracted $1,000. add ledger
NSF sub ledger

Prepare a bank reconciliation:


M&M’s general ledger had a cash balance of $10,000 on March 31st. Upon comparing the
company cash ledger with the bank statement M&M noted the following reconciling items:
 Bank service fee $10,
 NSF check for $100 from ABC,
 a check M&M wrote for $550 was recorded for only $505,
 three checks the company wrote totaling $1,500 were not on the bank statement,
 and a $2,000 cash receipt recognized in the ledger had not been deposited in the bank yet.

The bank statement showed the company balance at the bank was: $9,345. Determine the
reconciled cash ledger balance.

Bank Reconciliation
March 31
Company’s Bank Statement Company’s Cash Ledger

Balance Before reconciliation Balance Before reconciliation

Balance After reconciliation Balance After reconciliation

CASH
(3/31)

STATEMENT OF CASH FLOWS


Page 4
Operating, Investing, Financing or NONE if cash is not involved
Transaction Amount O, I, F, None
a. Received cash from customers $80,000
b. Paid cash to employees for the work performed 35,000
c. Paid rent for the trenching machine 500
d. Paid cash for two new mowers 30,000
e. Borrowed from the bank 25,000
f. Paid quarterly dividend to owner 40,000
g. Provided services to customers on account 15,000

M&M, Inc.
Statement of Cash Flows
For the month ending March 31,
Cash Flows from Operating Activities
Cash inflows:

Cash outflows:

Net cash flows from operating activities


Cash Flows from Investing Activities

Net cash flows from investing activities


Cash Flows from Financing Activities

Net cash flows from financing activities


Net change in cash
Cash at the beginning of the month (from Feb 28th Balance Sheet) 10,000
Cash at the end of the month (reconcile to cash on the Balance Sheet)

MORE PRACTICE O, I, F, None


a. Borrow cash from the bank
b. Purchase supplies on account
c. Purchase equipment with cash
d. Provide services on account
e. Pay cash on account for b. above
f. Sell for cash a warehouse no longer in use
g. Receive cash on account for d. above

Page 5

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