Post on 19-May-2015
REPORTING AND ANALYZING CASH
Lecture 3
CASH, CASH EQUIVALENTS, AND LIQUIDITY
CashCurrency, coins and amounts on
deposit in bank account, checking accounts, and some savings accounts.
CASH, CASH EQUIVALENTS, AND LIQUIDITY
Cash Equivalents are short-term, highly liquid investments that are:
Readily convertible to a known cash amount.
Close to maturity date and not sensitive to interest rate changes.
CASH, CASH EQUIVALENTS, AND LIQUIDITY
Liquidity How easily an asset can be converted into
another asset .
Inventory Cash
UNDERSTANDING ON THE MONEY
Restricted cash- To pay salary payable- To pay dividends- To pay loan- To develop production Bank overdrafts
On balance sheet:• 1-3 month- cash• 3-12 month – Shot term investment•Over 1 year- Long term investment
PETTY CASH SYSTEM OF CONTROL
Small payments required in most companies for items such as postage, courier fees, repairs and supplies.
OPERATING A PETTY CASH FUND
Petty Cashier
AccountantAccountant Petty CashierPetty Cashier
GENERAL JOURNAL Page 4Date Description PR Debit Credit
May 1 Petty Cash 200
Cash 200
Petty Cashier
Petty CashierPetty Cashier
OPERATING A PETTY CASH FUND
$200
Petty CashierPetty Cashier
34¢
Stamps Courier
OPERATING A PETTY CASH FUND
Petty CashierPetty Cashier
34¢
Stamps Courier
Receipts
Petty CashierPetty Cashier
Receipts$125
AccountantAccountant
GENERAL JOURNAL Page 4Date Description PR Debit Credit
May 15 Postage Expense 45
Courier Expense 80
Cash 125
$125To reimburse
petty cash fund
W use a CashOver and Short
account if needed.
W use a CashOver and Short
account if needed.
OPERATING A PETTY CASH FUND
$75
$200
Petty CashierPetty Cashier
Receipts$125
AccountantAccountant
GENERAL JOURNAL Page 4Date Description PR Debit Credit
May 15 Postage Expense 45
Courier Expense 80
Cash Over and Short 3
Cash 128
$128To reimburse
petty cash fund
We use a CashOver and Short
account if needed.
We use a CashOver and Short
account if needed.
OPERATING A PETTY CASH FUND
$72
Petty CashierPetty Cashier
Receipts$125
AccountantAccountant
GENERAL JOURNAL Page 4Date Description PR Debit Credit
May 15 Postage Expense 45
Courier Expense 80
Cash Over and Short 4
Cash 121
$121To reimburse
petty cash fund
We use a CashOver and Short
account if needed.
We use a CashOver and Short
account if needed.
OPERATING A PETTY CASH FUND
$79
PETTY CASH EXAMPLE
• Tension Co. maintains a petty cash fund of Tension Co. maintains a petty cash fund of $400. The following summary information $400. The following summary information was taken from petty cash vouchers for was taken from petty cash vouchers for July:July:– Travel Expenses $79.30– Customer Business Lunches 93.42– Express Mail Postage 55.00– Miscellaneous Office Supplies 32.48
• Let’s look at replenishing the fund if the Let’s look at replenishing the fund if the balance on July 31 was $137.80. balance on July 31 was $137.80.
PETTY CASH EXAMPLE
What amount of cash will be required to replenish the petty cash fund?a. $260.20b. $262.20c. $139.80d. $137.80
PETTY CASH EXAMPLE
The journal entry to replenish the petty cash fund is:
GENERAL JOURNAL Page 8Date Description PR Debit Credit
Jul 31 Travel Expense 79.30
Entertainment Expense 93.42
Postage Expense 55.00
Office Supplies Expense 32.48
Cash Over and Short 2.00
Cash 262.20
BANK RECONCILIATIONS
BANK RECONCILIATION
A bank reconciliation is prepared to explain the difference between cash reported on the bank
statement and the cash balance on company’s books.First National BankNashville, TN 37459 May 31, 2002
Clothes MartNashville, TN
Acct No 278609
Previous Balance Total Checks
Total Deposits
Current Balance
1488.79 1,367.09 2,604.22 2,725.92
5/1 55.00
5/2 1,251.88
5/4 279.50
5/7 44.75
5/9 21.81
5/12 37.55
5/15 825.04
5/18 175.98
5/21 288.31
5/27 12.54
5/30 527.30
5/31 451.65
Why are thebalances different?
*
Reasons for Differences Between Depositor’s Reasons for Differences Between Depositor’s Records and the Bank StatementRecords and the Bank Statement
Reasons for Differences Between Depositor’s Reasons for Differences Between Depositor’s Records and the Bank StatementRecords and the Bank Statement
Outstanding checksDeposits in transitService chargesCollectionsNot-sufficient-funds
(NSF) checksErrors
Outstanding checksDeposits in transitService chargesCollectionsNot-sufficient-funds
(NSF) checksErrors
RECONCILING BANK STATEMENT BALANCEDeduct: Outstanding checks.
Add: Deposits in transit.
Add or Deduct: Bank errors.
RECONCILING BOOK BALANCE
Deduct: NSF checks (NSF).
Deduct: Bank service charge.
Add: Interest earned and Collections made by the bank.
Add or Deduct Book errors.
THERE IS ONE TRUE CASH BALANCE...
Bank balance per statement is reconciled to the TRUE cash balance
Book balance (general ledger balance) is reconciled to the TRUE cash balance
6- 21
BANK RECONCILIATION EXAMPLE
Let’s prepare a July 31 bank reconciliation for the Simmons Company. The July 31 bank statement indicated a balance
of $9,610,
while the cash general ledger account on that date shows a balance of $7,430.
BANK RECONCILIATION EXAMPLE
Outstanding checks totaled $2,417.A $500 check mailed to the bank for deposit had
not reached the bank at the statement date.The bank returned a customer’s NSF check for
$225 received as payment on account receivable.The bank statement showed $30 interest earned
during July.Check No. 781 for supplies expense cleared the
bank for $268 but was erroneously recorded in our books as $240.
A $486 deposit by Acme Company was erroneously credited to our account by the bank.
Simmons CompanyBank Reconciliation
July 31, 2002
Simmons CompanyBank Reconciliation
July 31, 2002
RECORDING ADJUSTING ENTRIES FROM BANK RECONCILIATION
Only amounts shown on the book portion of the reconciliation require an adjusting entry.
RECORDING ADJUSTING ENTRIES FROM BANK RECONCILIATION
Only amounts shown on the book portion of the reconciliation require an adjusting entry.
RECORDING ADJUSTING ENTRIES FROM BANK RECONCILIATION
After posting the reconciling entries the cash account looks like this:
Adjusted balance on July 31.
Cash accounting Chapter 6 М.Pollard. sheet- 163 Sheet 181-186 М.Pollard. ху- 186-189. О. Нүржигмаа.
Sheet 1-12