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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

(Bad Debts—Aging) Danica Patrick, Inc. includes the following account among its trade receivables.

Hopkins Company

1/1

Balance forward

700

1/28

Cash (#1710)

$1,100

1/20

Invoice #1710

1,100

4/2

Cash (#2116)

1,350

3/14

Invoice #2116

1,350

4/10

Cash (1/1 Balance)

155

4/12

Invoice #2412

1,710

4/30

Cash (#2412)

1,000

9/5

Invoice #3614

490

9/20

Cash (#3614 and part of #2412)

790

10/17

Invoice #4912

860

10/31

Cash (#4912)

860

11/18

Invoice #5681

2,000

12/1

Cash (#5681)

1,250

12/20

Invoice #6347

800

12/29

Cash (#6347)

800

Instructions

Age the balance and specify any items that apparently require particular attention at year-end

(Bank Reconciliation and Adjusting Entries) Logan Bruno Company has just received the August 31, 2017, bank statement, which is summarized below.

Country National Bank

Disbursement

Receipts

Balance

Balance August 1

\(9,369

Deposits during August

\)32,200

\(41,569

Note collected for depositor, including \)40 interest

1,040

42,609

Checks cleared during August

34,500

8,109

Bank service charges

20

8,089

Balance, August 31

8,089

The general ledger Cash account contained the following entries for the month of August.

Cash

Balance, August 1

10,050

Disbursement in August

34,903

Receipt during August

35,000

Deposits in transit at August 31 are \(3,800, and checks outstanding at August 31 total \)1,050. Cash on hand at August 31 is \(310. The bookkeeper improperly entered one check in the books at \)146.50 which was written for $164.50 for supplies (expense); it cleared the bank during the month of August.

Instructions

(a) Prepare a bank reconciliation dated August 31, 2017, proceeding to a correct balance.

(b) Prepare any entries necessary to make the books correct and complete.

(c) What amount of cash should be reported in the August 31 balance sheet?

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’s list price. Each note’s stated interest rate is below the customer’s 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

At December 31, 2017, how should Corrs measure and account for the impact of estimated losses resulting from notes receivable that it

(1) Retained and did not sell?

(2) Sold to bank with recourse?

Moon Hardware is planning to factor some of its receivables. The cash received will be used to pay for inventory purchases. The factor has indicated that it will require “recourse” on the sold receivables. Explain to the controller of Moon Hardware what “recourse” is and how the recourse will be reflected in Moon’s financial statements after the sale of the receivables.

(Transfer of Receivables with Recourse) Ames Quartet Inc. factors receivables with a carrying amount of \(200,000 to Joffrey Company for \)160,000 on a with recourse basis.
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