-how to correct errors in a bank reconciliation -what purpose does a bank reconc
ID: 2729065 • Letter: #
Question
-how to correct errors in a bank reconciliation -what purpose does a bank reconciliation serve? -what is an NSF check and how is it reflected on a bank rec?
-how is CGS determined in a periodic system? what would result in an over or understatement of ending inventory? what is accumulated depreciation?
-what does the process of posting do? -using the same method year after year is in line with which GAAP principle?
-what is a current liability vs. long term liability?
-given info for stock – how to calculate the balance in the common stock account?
-what are the differences the difference between authorized, issued, and outstanding shares of stock
Explanation / Answer
1. A bank reconciliation reconciles the differences between the transactions recorded in Cash GL and by Bank. It removes the difference of postings resulting from deposits in transit, checks outstanding, bank charges not recorded in cash GL, Payment collected by bank but not recorded in Cash GL , NSF etc.
NSF is a customer check deposited to bank but the check returned without crediting the a/c as there is not suffucient fund in customer a/c and the check is dishonored. The check is returned by bank to the depositing company. In bank reconcilaition it is reconciled by debiting Accounts Receivable( Customer) and Crediting Cash A/c,
2. In periodic system : COGS is determined by:
Opening stock --------
Add Purchases ______
Total Goods Avaiable for Sale --------
Less : Closing Inventory --------------
= Cost of Goods Sold.
In the situation when cost of purchase increases over time , the LIFO process results in lower cost of ending inventory as the high cost later purchases are issued first.
On the other hand the FIFO method results in high cost of ending inventory as the low cost initial purchases are issued first and high cost later purchases stay in inventory.
Accumulated Depreciation is a Contra Asset Account. The Gross value of Assets remains at the purchased value but the yearly depreciations keep on depositing in Accumulated depreciation a/c. Gross Asset A/c plus Accumulated depreciation a/c gives the total net asset value.
3. Posting is the process in which the debit and credit parts of a transaction are positioned in the correct GL corresponding to the nature of posting.
The Consistency principle of GAAP is the principle that requires that same accounting principles to be followed year after year.
4. Current liability is the liability that needs to be settled within one year from the close of the accounting period or within a normal business cycle , whicever is later. Long term liabilities are those liabilities that need not be settled within one year from the close of the accounting period or within a normal business cycle.
5. Balance in Common Stock A/c is the Opening balance of Common Stock A/c Plus any new Common Stock issued during the period, less any Common stock retired during the period.
6. Authorised shares are the no of shares that a company can issue as authorised in the documents of registration od company. Issued shares are no of shares actually issued by the company for subscription. Outstanding shares are the no of shares issued less the no of shares held as Treasury stock.
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