Manual Project Ch 4

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  1. Purchases and Cash Disbursements Cycle Subcycles 4
    • 1. Purchases
    • 2. Cash Disbursements
    • 3. Purchases returns and allowances
    • 4. Provision for depreciation, and adjustments for prepaids and accruals
  2. 5 Accountant's Objectives
    • 1. Record transactions
    • 2. Correct amounts
    • 3. Chart of accounts classification
    • 4. Proper period
    • 5.Material disclosures in statements footnotes
  3. Purchases-Actions and related documents 6
    • 1 Requisition goods or services/ Purchase requisition
    • 2. Process purchase order/ purchase order
    • 3. Receive goods / Receiving report
    • 4. Receive vendor invoice / vendor invoice
    • 5. Record in journal and sub. ledger / purchase journal, AP sub. ledger, or Fixed asset sub. ledger
    • 6. Summarize journal & post to ledger/ general ledger
  4. Requisition of goods or services
    Written or oral request for goods or services needed within the company. Purchasing department notified.
  5. Purchase requisition
    Document to let purchasing know of goods or services needed within the company
  6. Process purchase order
    Purchasing department initiates order for goods from reliable vendor
  7. Purchase order
    • document sent to vendor to request goods or services.
    • Includes: ship terms, quantity order, product #, item #, unit cost, signature
  8. Receive goods or services
    GAAP requires the recognition of  purchase when goods are received or when services performed.
  9. Receiving report
    • Prepared when goods are received
    • Includes: Date, PO or Return #, address, freight carrier & bill #, quantity, item #, description, remarks of condition, received by, delivered to
  10. Receive invoice from vendor
    • Seller sends a bill
    • Many companies records the liability on this day
  11. Vendor's Invoice
    • Bill
    • Includes: description, quantity, price, freight, discounts term, date, amount owed
  12. Record in journal and sub. ledger
    Purchases recorded in purchase journal and posted in AP sub. ledger to vendor. If an asset was purchased use fixed asset sub. ledger
  13. Purchase journal
    Includes: date, vendor, invoice #, Purchases, other-Acct No, amount, Acct pay., purchase return
  14. AP sub ledger
    A ledger for recording individual purchases, cash disbursements, and purchases returns and allowances for each vendor
  15. Fixed Asset Sub. ledger
    • A ledger for recording individual purchases of fixed assets
    • Includes 3 subsidiaries in one: gross fixed asset, depreciation expense, and accumulated depreciation
  16. Summarize journal and post to ledger
    Purchases journal accounts are totaled and posted to the general ledger
  17. Cash Disbursements- Actions and Related Documents 3
    • 1. Process Cash disbursement / Check
    • 2. Record in journal & Sub. ledger/ Cash disbursement journal and AP subsidiary ledger
    • 3. Summarize journal and post to ledger / cash disbursement journal and general ledger
  18. Process Cash disbursement
    prepreration, signing and mailing of check. have invoice, receiving report, and purchase order to confirm information
  19. Check
    • used to pay for purchases or service when due.
    • Includes payee name, amount, date, and signature
  20. Record in journal and sub. ledger
    Payments are recorded in cash disbursement journal  and posted in the AP sub. ledger to vendor's account
  21. Cash Disbursement Journal
    Includes: Date, Chk #, Description, Cash, Purchase Discount, Acct Pay, freight-in, Other-act # amount
  22. Summaries journal and post to ledger
    Cash disbursement journal accounts are totaled and posted to the general ledger
  23. Purchases Returns and Allowances- Actions and Related Documents 5
    • 1.Process return or allowance request / Return or allow request
    • 2. Ship goods (returns) / Shipping document
    • 3. Receive debit from vendor / Debit memo
    • 4. Record in journal and sub. ledger / Purchase ret. & allow. journal and AP sub. ledger
    • 5. Summarize journal & post to ledger / General ledger
  24. Process return or allow request
    Purchasing department negotiates the amount of credit for returning goods or reduction in price
  25. Return or Allow. Request
    • Document to request authority to return goods or obtain allowance
    • Includes: vendor name, address, Acct #, desired type of refund,quantity,
    • description, reason for return, invoice # & date
  26. Ship goods
    GAAP requires recognition of purchase returns and Allow. in the accounting period of the return of goods
  27. Shipping Document
    Sometimes the same document as sales returns so the type of return must be clearly indicated
  28. Receive debit from vendor
    Informs company of the change in account payable
  29. Debit memo
    • Received from vendor showing amount and terms of the return or allowance
    • Includes:address, date, acct #, return #, invoice # & date, receiving report #, item #, description, quantiy, price, amount,total, type of refund, prepared by
  30. Record in journal & post to sub. ledger
    Purchase returns an allowances are recorded in the purchases journal (or company maintains separate journal) and posted to AP sub. ledger
  31. Summarize journal and post to ledger
    total journal or column in purchase journal and post to general ledger
  32. Prepaids, Accruals and Depreciation- Actions and Related Documents 3
    • 1. Determine adjustments for accruals, prepaids, and depreciation / accrual, prepaid, or depreciation memo
    • 2. Record in journal / general journal
    • 3. Post to ledger / general ledger
  33. Determine adjustments for accruals, prepaids, and depreciation
    Calculated at the balance sheet date. Convert from cash to accrual basis
  34. Accrued interest memo
    document indicating accruals. Many companies don't use
  35. Record in journal & post to sub. ledger
    Individually recorded to the general joural and posted to fixed asset sub ledger
  36. Post to ledger
    Individually posted from general journal to general ledger
  37. Account Payable Trial Balance
    What is it
    listing of the ending balances in the AP sub. ledger at specific point in time
  38. Account Payable Trial Balance
    what it shows
    Vendor #, vendor name, Amount payable
  39. Fixed Asset Trial Balance
    what it is
    listing of the ending balances in the fixed asset sub. ledger at a specific point in time (yr-end)
  40. Fixed Asset Trial Balance
    What is shows
    Asset, Cost, Accum. Depreciation, Net Book Value
  41. Internal Controls
    Authorization of transactions 4
    • 1. Order goods or services including quantiy
    • 2. Price-purchasing dept., lowest cost
    • 3. Receive the goods or services-appropriate items receives
    • 4. Disburse cash
  42. Independent checks 5
    • 1.Account for all receiving reports
    • 2.Check prices paid against competing prices
    • 3.Mathematical accuracy of journals and records
    • 4.Reconcile control accounts to sub. ledger
    • 5.Bank Rec.
  43. Bank Reconciliation
    3. Common causes of difference in book and bank account
    • 1 Deposits in transit
    • 2. Outstanding Checks
    • 3.. Bank service charges
  44. Errors or Fraud found from bank rec.
    • 1. check recorded different from actual amount
    • 2. Deposit to bank not recorded in journal
    • 3. Theft of cash by not deposing money recorded in journal
    • 4. Bank debiting account for larger than actual amount
    • 5. Error in adding cash column in cash receipt journal
    • 6. Posting wrong total from journal to ledger
  45. Items needed for preparing bank reconciliation
    • 1. Bank statement
    • 2. List of cancelled checks and deposits
    • 3. Cash receipt journal
    • 4. Cash disbursement journal
    • 5. Cash book balance
    • 6. prior month's bank reconciliaion
Card Set
Manual Project Ch 4
Purchases and Cash Disbursement Cycle
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