ACC 400 Week 1 Assignment And Weekly Summary

Week 1: E-text Individual AssignmentsACC/400
 
Week 1: E-text Individual Assignments
Financial Accounting: Tools for Business Decision Making, 4th edition
Chapter 7: Problem Set B: P7-3B
a)      Prepare the bank reconciliation as of May 31, 2007.





GALENTI COMPANY




Bank Reconciliation




May 31, 2007




Cash balance per bank statement

 

$7,964.60




Add:


Deposits in transit


$836.15

 


 

Bank error - Gallen Company check


290.00


1,126.15



 

9,090.75




Less:


Outstanding checks

 

806.25




Adjusted cash balance per bank

 

$8,284.50



 



Cash balance per books

 

$5,681.50




Add:


Collection of note receivable

 

3,050.00



 

($3,000 + $80 interest – $30 collection fee)

 

8,731.50



 



Less:


NSF check - K. Uzong


$340.00

 


 

Error in May 12 deposit


10.00

 


 

Error in recording check No. 1181


27.00

 


 

Check printing charge


70.00


447.00




Adjusted cash balance per books

 

$8,284.50
 
 






 
“Current assets are assets that a company expects to convert to cash or use up within one year” (Kimmel, Weygandt, & Kieso, 2007, p. 49). Supplies or accounts receivable are current assets since supplies are expected to be used within one year, and accounts receivable are expected to be collected within one year.
 
According to the text, common types of current assets are:

  1. Cash

  2. Short-term investments

  3. Receivables

  4. Inventories

  5. Prepaid expenses


 
The opposite of a current asset, a non-current asset is an asset that is not easily converted to cash or not expected to become cash within one year.
 
As the definition of each indicates, current assets are assets that are expected to be used or converted to cash within one year, whereas, noncurrent assets are not expected to be used or converted to cash within one year
 
The current and noncurrent assets are found within the Balance Sheet and are usually listed in the order in which they are expected to convert to cash (or, order of liquidity).
 
An example of a significant accounting estimate is estimated uncollectibles; referred to as the allowance method of accounting. This method “…involves estimating uncollectible accounts at the end of each period” (Kimmel, Weygandt, & Kieso, 2007, p. 375).
 
The estimated uncollectibles, or allowance method provides better matching of expenses with revenues. In addition, it ensures that receivables are stated at cash realizable value, excluding amounts that the company has estimated uncollectible; therefore reducing receivables on the balance sheet.
 
According to Kimmel et al. (2006), when bad debts are material, companies must use the allowance method for financial reporting purposes. The three essential features are:
 

  1. Companies estimate uncollectible accounts receivable and match them against revenues in the same accounting period in which the revenues are recorded.


 

  1. Companies record estimated uncollectibles as an increase (a debit) to Bad Debts Expense and an increase (a credit) to Allowance for Doubtful Accounts (a contra asset account) through an adjusting entry at the end of each period.


 

  1. Companies debit actual uncollectibles to Allowance for Doubtful Accounts and credit them to Accounts Receivable at the time the specific account is written off as uncollectible.


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