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Chapter 7: Question 24 (page 363)

Distinguish among the following: (1) a general checking account, (2) an imprest bank account, and (3) a lockbox account.

Short Answer

Expert verified

A general checking account is the normal bank account maintained by each business entity. An Imprest bank account is maintained for a special purpose only. A lockbox account is maintained to get remittances from the customers.

Step by step solution

01

Definition of Bank Account

A bank account can be defined as an account maintained with a financial institution or banking institution that allows deposits and withdrawal. It also performs some agency functions on behalf of its customer.

02

General Checking Account

The principal bank account is maintained by the business entity used to complete most financial transactions. Business entity issues and deposits checks in this account only.

03

Imprest Bank Account

The bank account that can disburse checks for a special purpose is an imprest bank account. Business entities deposit money in such bank accounts, which is sufficient for covering the allocation of a specific group.

04

A Lockbox Account

A local post box in which customers of different companies mail remittances to the companies is known as a lockbox account. The local bank is allowed to empty the lockbox daily and credit the company's account.

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Most popular questions from this chapter

Simms Company has significant amounts of trade accounts receivable. Simms uses the allowance method to estimate bad debts instead of the direct write-off method. During the year, some specific accounts were written off as uncollectible, and some that were previously written off as uncollectible were collected.

Instructions

(a) What are the deficiencies of the direct write-off method?

(b) Briefly describe the allowance method to estimate bad debts and the theoretical justification for its use?

(c) How should Simms account for the collection of the specific accounts previously written off as uncollectible?

Corrs Wholesalers Co. sells industrial equipment for a standard 3-year note receivable. Revenue is recognized at time of sale. Each note is secured by a lien on the equipment and has a face amount equal to the equipment鈥檚 list price. Each note鈥檚 stated interest rate is below the customer鈥檚 market rate at date of sale. All notes are to be collected in three equal annual installments beginning one year after sale. Some of the notes are subsequently sold to a bank with recourse, some are subsequently sold without recourse, and some are retained by Corrs. At year end, Corrs evaluates all outstanding notes receivable and provides for estimated losses arising from defaults.

Instructions

What is the appropriate valuation basis for Corrs鈥檚 notes receivable at the date it sells equipment?

(Bank Reconciliation and Adjusting Entries) Angela Lansbury Company deposits all receipts and makes all payments by check. The following information is available from the cash records.

June 30 Bank Reconciliation Statement

Balance per bank

\(7,000

Add: Deposit in transit

1,540

Less: Outstanding checks

(2,000)

Balance per books

\)6,540

Month of July Results

Per Bank

Per Books

Balance July 31

\(8,650

\)9,250

July Deposits

5,000

5,810

July Checks

4,000

3,100

July note collected (not included in July deposits)

1,000

-

July bank service charge

15

-

July NSF check from a customer, returned by the bank (recorded by bank as a charge)

335

-

Instructions

(a) Prepare a bank reconciliation going from balance per bank and balance per book to correct cash balance.

(b) Prepare the general journal entry or entries to correct the Cash account.

Answer

Recent financial statements of General Mills, Inc. report net sales of \(12,442,000,000. Accounts receivable are \)912,000,000 at the beginning of the year and $953,000,000 at the end of the year. Compute General Mills鈥� accounts receivable turnover. Compute General Mills鈥� average collection period for accounts receivable in days.

What is the fair value option? Where do companies that elect the fair value option report unrealized holding gains and losses?
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