B. Average collection period in days is 14.7 days. C. The higher the accounts re
ID: 2438310 • Letter: B
Question
B. Average collection period in days is 14.7 days. C. The higher the accounts receivable turnover, the less liquid the accounts recelvable. D. The longer (higher value) of the average collection period, the less liquid the accounts receivable. Q22 Michael, owner of Linen Michael Fabrics, asks you to explain how she should treat the following reconciling items when reconciling the company's bank account: (1) a debit memorandum for an NSF check, (2) a credit memorandum for an electronic funds transfer on account from a customer, (3) outstanding checks, and (4) a deposit in transit. should treat the reconciling items as follows. Which of the following statement is false? A. NSF check: Add to balance per books. B. Electronic funds transfer: Add to balance per books. C. Outstanding checks: Deduct from balance per bank. D. Deposit in transit: Add to balance per bank. Q23Explanation / Answer
A)NSF check: Add to balance per books is false.
Bank debit memo is an item on the bank statement that reduces the company's checking account balance.Here for NSF check the bank has issued a debit memo .
NSF check is a check that was not honored by the bank of the person writing the check because of insuffucient balance .Here bank will deduct the checking account of the Company that had deposited the check. Therefore the company should subtract balance per book not add (as balance per bank has already been deducted by bank as bank has issued the debit memo for NSF check.)
B) Electronic fund transfer Add to balance per book is true
A credit memo is an item on a Company's bank statement that increases the company's checking account balance .Therefore bank's credit memo must be added to company's accounting records i.e. added to balance per book.
C)Outstanding checks: Deduct from balance per bank is true
Outstanding checks are the checks written which have not been cleared by the banks.Outstanding check is the liability for the payor.
Therefore in the Company's account it is already recorded by deducting the amount from balance per book. So it should be deducted from balance per bank also.
D) Deposit in transit : Add to balance per bank is true
Deposit in transit is a receipt entered on company's records but not processed by bank.The company has already added deposit to it's balance per book. So it should be added to balance per bank also for reconciliation.
Note: Balance per bank means ending balance shown in the bank statement.
Balance per book means ending cash/bank balance shown in the company's book.
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