Cash l

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Cash l

  1. 1. REPORTING AND ANALYZING CASH Lecture 3
  2. 2. CASH , CASH EQUIVALENTS, AND LIQUIDITY <ul><li>Cash </li></ul><ul><ul><li>Currency, coins and amounts on deposit in bank account, checking accounts, and some savings accounts. </li></ul></ul>
  3. 3. CASH, CASH EQUIVALENTS , AND LIQUIDITY <ul><li>Cash Equivalents are short-term, highly liquid investments that are: </li></ul><ul><ul><li>Readily convertible to a known cash amount. </li></ul></ul><ul><ul><li>Close to maturity date and not sensitive to interest rate changes. </li></ul></ul>
  4. 4. CASH, CASH EQUIVALENTS, AND LIQUIDITY <ul><li>Liquidity </li></ul><ul><ul><li>How easily an asset can be converted into another asset . </li></ul></ul>Inventory Cash
  5. 5. UNDERSTANDING ON THE MONEY <ul><li>Restricted cash </li></ul><ul><li>To pay salary payable </li></ul><ul><li>To pay dividends </li></ul><ul><li>To pay loan </li></ul><ul><li>To develop production </li></ul><ul><li>Bank overdrafts </li></ul><ul><li>On balance sheet: </li></ul><ul><li>1-3 month- cash </li></ul><ul><li>3-12 month – Shot term investment </li></ul><ul><li>Over 1 year- Long term investment </li></ul>
  6. 6. PETTY CASH SYSTEM OF CONTROL <ul><li>Small payments required in most companies for items such as postage, courier fees, repairs and supplies. </li></ul>
  7. 7. OPERATING A PETTY CASH FUND Accountant Petty Cashier Petty Cashier
  8. 8. OPERATING A PETTY CASH FUND Petty Cashier $200 Petty Cashier
  9. 9. OPERATING A PETTY CASH FUND Petty Cashier Petty Cashier Receipts 34¢ Stamps Courier 34¢ Stamps Courier
  10. 10. OPERATING A PETTY CASH FUND Petty Cashier Receipts $125 Accountant $125 To reimburse petty cash fund W use a Cash Over and Short account if needed. $75 $200
  11. 11. OPERATING A PETTY CASH FUND Petty Cashier Receipts $125 Accountant $128 To reimburse petty cash fund We use a Cash Over and Short account if needed. $72
  12. 12. OPERATING A PETTY CASH FUND Petty Cashier Receipts $125 Accountant $121 To reimburse petty cash fund We use a Cash Over and Short account if needed. $79
  13. 13. PETTY CASH EXAMPLE <ul><li>Tension Co. maintains a petty cash fund of $400. The following summary information was taken from petty cash vouchers for July: </li></ul><ul><ul><li>Travel Expenses $79.30 </li></ul></ul><ul><ul><li>Customer Business Lunches 93.42 </li></ul></ul><ul><ul><li>Express Mail Postage 55.00 </li></ul></ul><ul><ul><li>Miscellaneous Office Supplies 32.48 </li></ul></ul><ul><li>Let’s look at replenishing the fund if the balance on July 31 was $137.80. </li></ul>
  14. 14. PETTY CASH EXAMPLE <ul><li>What amount of cash will be required to replenish the petty cash fund? </li></ul><ul><li>a. $260.20 </li></ul><ul><li>b. $262.20 </li></ul><ul><li>c. $139.80 </li></ul><ul><li>d. $137.80 </li></ul>
  15. 15. PETTY CASH EXAMPLE <ul><li>The journal entry to replenish the petty cash fund is: </li></ul>
  16. 16. BANK RECONCILIATIONS
  17. 17. BANK RECONCILIATION <ul><li>A bank reconciliation is prepared to explain the difference between cash reported on the bank statement and the cash balance on company’s books. </li></ul>Why are the balances different? *
  18. 18. Reasons for Differences Between Depositor’s Records and the Bank Statement <ul><li>Outstanding checks </li></ul><ul><li>Deposits in transit </li></ul><ul><li>Service charges </li></ul><ul><li>Collections </li></ul><ul><li>Not-sufficient-funds (NSF) checks </li></ul><ul><li>Errors </li></ul>
  19. 19. RECONCILING BANK STATEMENT BALANCE <ul><li>Deduct: Outstanding checks. </li></ul><ul><li>Add: Deposits in transit. </li></ul><ul><li>Add or Deduct: Bank errors. </li></ul>
  20. 20. RECONCILING BOOK BALANCE <ul><li>Deduct: NSF checks (NSF). </li></ul><ul><li>Deduct: Bank service charge. </li></ul><ul><li>Add: Interest earned and Collections made by the bank. </li></ul><ul><li>Add or Deduct Book errors. </li></ul>
  21. 21. THERE IS ONE TRUE CASH BALANCE... <ul><li>Bank balance per statement is reconciled to the TRUE cash balance </li></ul><ul><li>Book balance (general ledger balance) is reconciled to the TRUE cash balance </li></ul>6-
  22. 22. BANK RECONCILIATION EXAMPLE <ul><li>Let’s prepare a July 31 bank reconciliation for the Simmons Company. </li></ul><ul><ul><li>The July 31 bank statement indicated a balance of $9,610, </li></ul></ul><ul><ul><li>while the cash general ledger account on that date shows a balance of $7,430. </li></ul></ul>
  23. 23. BANK RECONCILIATION EXAMPLE <ul><ul><li>Outstanding checks totaled $2,417. </li></ul></ul><ul><ul><li>A $500 check mailed to the bank for deposit had not reached the bank at the statement date. </li></ul></ul><ul><ul><li>The bank returned a customer’s NSF check for $225 received as payment on account receivable. </li></ul></ul><ul><ul><li>The bank statement showed $30 interest earned during July. </li></ul></ul><ul><ul><li>Check No. 781 for supplies expense cleared the bank for $268 but was erroneously recorded in our books as $240. </li></ul></ul><ul><ul><li>A $486 deposit by Acme Company was erroneously credited to our account by the bank. </li></ul></ul>
  24. 24. Simmons Company Bank Reconciliation July 31, 2002
  25. 25. Simmons Company Bank Reconciliation July 31, 2002
  26. 26. RECORDING ADJUSTING ENTRIES FROM BANK RECONCILIATION <ul><li>Only amounts shown on the book portion of the reconciliation require an adjusting entry. </li></ul><ul><li> </li></ul>
  27. 27. RECORDING ADJUSTING ENTRIES FROM BANK RECONCILIATION <ul><li>Only amounts shown on the book portion of the reconciliation require an adjusting entry. </li></ul><ul><li> </li></ul><ul><li> </li></ul>
  28. 28. RECORDING ADJUSTING ENTRIES FROM BANK RECONCILIATION <ul><li>After posting the reconciling entries the cash account looks like this: </li></ul>Adjusted balance on July 31.
  29. 29. ACCOUNTING IS FUN!
  30. 30. <ul><li>Cash accounting </li></ul><ul><li>Chapter 6 М. Pollard. sheet - 163 </li></ul><ul><li>Sheet 181-186 </li></ul><ul><li>М. Pollard. ху- 186-189. О. Нүржигмаа. Sheet 1-12 </li></ul>

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