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Week 5 Notes

by: Cheyenne Hunt

Week 5 Notes ACCT 2110 - 002

Cheyenne Hunt
GPA 3.33

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About this Document

These notes cover closing accounts, internal control, cash and cash equivalents, and cash controls.
Principles of Financial Accounting
Elizabeth Miller
Class Notes
Principles, financial, Accounting, finance, Cash Short and Over, Bank Reconcilations, petty cash fund, cash, cash equivalents, internal control
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This 3 page Class Notes was uploaded by Cheyenne Hunt on Sunday March 20, 2016. The Class Notes belongs to ACCT 2110 - 002 at Auburn University taught by Elizabeth Miller in Winter 2016. Since its upload, it has received 15 views. For similar materials see Principles of Financial Accounting in Accounting at Auburn University.


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Date Created: 03/20/16
Week 5 Notes Closing the Accounts  Steps: 1. Debit all revenue accounts, credit income summary 2. Debit income summary, credit all expense accounts 3. Debit income summary, credit retained earnings 4. Debit retained earnings, credit dividends  EX: Dec 31 Rent Rev 2,174,000 Rent Rev Divs Income Summary 2,174,000 2,174,000 2,174,000 5,000 5,000 Income Summary 1,485,000 Sal Expense Sup Expense Salaries Expense 1,300,000 1,300,000 1,300,000 150,000 150,000 Supplies Expense 150,000 Int Expense Ins Expense Interest Expense 15,000 15,000 15,000 20,000 20,000 Insurance Expense 20,000 Ret Earnings Inc Summary Income Summary 689,000 1,135,000 1,485,000 2,174,000 Retained Earnings 689,000 5,000 689,000 689,000 Retained Earnings 5,000 Dividends 5,000 Internal Control  The system of policies and procedures that provide reasonable assurance that: o Company operations are effective and efficient o The company is complying with applicable laws and regulations o Company financial reporting is reliable  Elements: o Control Environment- atmosphere in which org members conduct and carry out activities o Risk Assessment- identification and analysis of external or internal risks o Control Activities- policies and procedures established to address risks o Information and Communication- open, timely, and appropriate flow of relevant problems o Monitoring- tracking potential and actual problems and assessing the quality of internal control  Limitations: o The human element o Cost-benefit analysis Cash Cash Equivalent Definitio Can be deposited into a bank and Any investment that is readily n readily used to pay someone convertible into cash and has and original maturity of at most 3 months Example Coins, bills, checking account, Treasury bills, certificates of s savings account, money orders, deposits, money market accounts, travelers checks commercial paper Cash and Cash Equivalents Cash Controls  Bank Reconciliations o The bank’s accounting records and those of the company often differ due to timing differences o These differences must be reconciled to determine the company’s actual cash balance o Steps: 1. Reconcile the bank balance to the actual cash balance 2. Reconcile the company’s book balance to the actual cash balance 3. Update the company’s book balance to the actual cash balance with journal entries o Credit memorandum- an addition on the bank items; ex: collection of interest o Debit memorandum- a deduction on the bank statement; ex: service charges o Deposits in transit- a deposit made by company but does not appear on the bank statement o Outstanding check- a check that has been distributed by the company but does not appear on the bank statements o NSF (nonsufficient funds) check: a customer’s check that bounces because of lack of funds; a deduction on the bank statement  Cash Over and Short Accounts o Record of discrepancies between the amount deposited in a bank and the total of cash register tapes o Debit account if over, credit if short  Petty Cash Funds o Often established by companies to pay for small dollar amount items o Steps: 1. Establish the fund 2. Make Payments from the Fund 3. Replenish the Fund o Debit account for additions (replenishment), credit for subtractions (payments from the fund)


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