Questions and Answers
What is a bank statement?
What defines a blank endorsement?
What is a checking account?
What does a code of conduct provide?
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What is a debit card?
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What is a dishonored check?
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What is an electronic funds transfer?
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What is the purpose of an endorsement on a check?
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What is petty cash?
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What is a postdated check?
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Because cash transactions occur more frequently than other transactions, the chances for making recording errors affecting cash are less.
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When making a deposit in a bank account, the bank issues a receipt.
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There are 4 types of endorsements commonly used: bank, special, original, and restrictive.
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A check with a bank endorsement can be cashed by anyone who has possession of the check.
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When writing a check, the first step is to prepare the check stub.
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Most banks do not look at the date the check is written and will draw money from the depositor's account at any time.
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The amount of a check is written twice on each check.
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A check that contains errors must be marked with the word VOID, and another check must be written.
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An important aspect of cash control is verifying that the information on a bank statement and a check are in agreement.
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An outstanding check is one that has been issued but not yet reported on a bank statement by the bank.
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Banks deduct service charges from customers' checking accounts without requiring customers to write a check for the amount.
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Not only do banks charge a fee for handling a dishonored check, but they also deduct the amount of the check from the account as well.
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The journal entry for a payment on account using electronic funds transfer is exactly the same as when the payment is made by check.
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The source document for an electronic funds transfer is a memorandum.
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The source document for a debit card purchase is a memorandum.
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Techknow Consulting maintains a petty cash fund for making large cash payments without writing checks.
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Businesses use petty cash when writing a check is not time or cost effective.
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A memorandum is the source document for the entry to record establishing a petty cash fund.
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Anytime a payment is made from a petty cash fund, a petty cash slip is prepared showing proof of a petty cash payment.
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When the petty cash fund is replenished, the balance of the petty cash account increases.
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Study Notes
Banking and Financial Terms
- Bank Statement: A report detailing deposits, withdrawals, and current bank balances provided to the account holder by the bank.
- Blank Endorsement: A simple endorsement on a check consisting solely of the endorser's signature, allowing anyone to cash it.
- Checking Account: A type of bank account that permits the holder to withdraw and deposit funds, enabling easy access to their money.
- Debit Card: A payment card linked directly to the cardholder's checking account, automatically deducting purchase amounts upon transaction.
- Electronic Funds Transfer (EFT): A system for transferring money electronically, bypassing the need for paper checks or cash.
Check Handling and Endorsements
- Dishonored Check: A check that has been rejected by the bank, often due to insufficient funds.
- Endorsement: The signing or stamping on the back of a check, facilitating ownership transfer to a new payee.
- Postdated Check: A check that has a date set in the future, which cannot be cashed until that date.
- Restrictive Endorsement: An endorsement that limits the transferability of a check, often specifying it for deposit only.
Cash Management Practices
- Petty Cash: A small sum of cash kept for minor expenses, used for convenience rather than checks or credit.
- Petty Cash Slip: A document used to record petty cash transactions, serving as proof of payment.
- Outstanding Check: A check that has been issued but hasn't yet cleared or been reported on the bank statement.
Check Writing Guidelines
- Memorandum for EFT: This serves as the source document for recording electronic funds transfers.
- Common Check Errors: A check with mistakes must be labeled "VOID" and a new one issued.
General Principles and Truth Statements
- Cash Control: Important to verify consistency between bank statement information and check records.
- Service Charges: Banks may deduct service fees from accounts without requiring a check from customers.
- Petty Cash Use: Typically utilized for small transactions when writing checks is inefficient.
- Check Validity: Most banks consider the date on checks, and checks are written to indicate amounts clearly.
True/False Key Points
- Frequency of cash transactions increases potential for errors (false).
- Deposits receive bank-issued receipts (true).
- Several types of endorsements exist (false - only three are commonly used: blank, restrictive, and special).
- Banks allow checks with endorsements to be cashed by anyone with possession (true).
- First step in writing a check is preparing the check stub (true).
- Banks may cash checks any time regardless of written date (false).
- Check amounts are noted twice for clarity (true).
- Errors in checks require a new transaction and voiding of the original (true).
- Petty cash fund does not increase upon replenishment (false).
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Description
Dive into the essential terms of Chapter 5 in Accounting with these flashcards. Each card provides a key word along with its definition, aiding in the understanding of vital concepts such as bank statements and checking accounts. Perfect for quick study and review before exams.