Examples of bank drafts in the following topics:
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- Types of cash include currency, funds in bank accounts, and non-risky financial instruments that are readily convertible to cash.
- Cash and cash equivalents are not just the amount of currency that a business has in its cash registers and bank accounts; they also include several different types of financial instruments.
- Cash equivalents include all undeposited negotiable instruments (such as checks), bank drafts, money orders and certain certificates of deposit.
- A certificate of deposit, or CD, is a financial product offered by banks to their customers.
- As a result, demand CDs generally have lower interest rates than CDs that allow the bank to hold onto the money for an agreed upon term.
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- Using a bank is one of the best internal controls on a business's cash.
- As an independent third party, a bank is less susceptible to schemes by a business's employees to steal funds.
- Banks generally require that every deposit is accompanied by a signed and dated deposit slip.
- These documents are kept by the bank to resolve any disputes that may arise regarding a transaction.
- Describe why a bank is one of the best internal controls a business can use
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- A bank statement only reflects a specific period of time, such as one month .
- However, it takes the banks time to prepare the statement and send it out.
- A bank reconciliation is a process that explains the difference between the bank statement on the amount shown in the organization's own financial records.
- A bank reconciliation consists of two columns; one for the book balance, the other for the bank balance.
- This is why reconciling the bank statement is necessary.
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- A company manages its cash primarily through the use of a voucher system and bank reconciliations.
- Bank reconciliations, or the process of checking to make sure that a business's financial records on cash equals how much is in the business's bank accounts, are especially useful as a control over deposits.
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- We know that cash in the bank is an asset, and when we increase an asset we debit its account.
- Then how come the credit balance in our bank accounts goes up when we deposit money?
- Think about the bank's perspective for a moment.
- It's ours; therefore, from the bank's perspective the deposit is viewed as a liability (money owed by the bank to others).
- When we deposit money into our accounts, the bank's liability increases, which is why the bank credits our account.
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- Examples of long-term liabilities are debentures, bonds, mortgage loans and other bank loans (it should be noted that not all bank loans are long term since not all are paid over a period greater than one year. ) Also long-term liabilities are a way for a company to show the existence of debt that can be paid in a time period longer than one year, a sign that the company is able to obtain long-term financing .
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- For example, in 2006 senior partners at PricewaterhouseCoopers (PwC) called for convergence to be "shelved indefinitely" in a draft paper, calling for the IASB to focus instead on improving its own set of standards.
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- Financial institutions (banks and other lending companies) use statements to decide whether to grant a company fresh working capital or extend debt securities (such as a long-term bank loan or debentures).
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- Bank Reconciliations: A process where the cash accounts on a business's books are regularly checked against bank statements.
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- A borrowing of funds from individuals or banks for improving a business or personal income that is payable during a short or long time period.