This document discusses accounting for cash transactions including: 1) Identifying fraud and internal controls over cash, petty cash fund operations, and bank account controls. It also covers preparing bank reconciliations and reporting cash. 2) Examples are provided to record journal entries for cash shortages/overages, petty cash transactions, and performing a bank reconciliation. 3) The key steps in a petty cash fund are establishing the fund, making payments from it, and replenishing the fund. Differences between actual and book cash balances are recorded through various journal entries.

1. Chapter 3
Accounting for Cash Transactions
Learning Objectives :-
• Identify the fraud and internal control over cash
• Describe the operation of petty cash fund
• Indicate the control features of a bank account
• Prepare a bank reconciliation
• Explain the reporting of cash

2. Differences between Actual balance and book balance :-
If Book bigger than Actual Balance
Dr. Short in Cash
Cr. Cash
Who will afford this shortage ?
1) The company will afford
Dr. Income statement
Cr. Short in cash
2) The cashier will afford
Dr. Cashier receivables
Cr. Short in cash
3) The company & the cashier
Dr. Income statement
Dr. Cashier Receivable
Cr. Short in Cash
If Book equal to Actual Balance
No Entry
If Book less than Actual
Balance
Dr. Cash
Cr. Unexpected revenue

3. Example: KFC discovered that it has a shortage in cash amounted to 3,000.
Prepare the settlement to this case if :
1) The Company pays the difference
2) The Cashier pays the difference
3) The Company & The Cashier pays the difference equally
Answer
3,000
Dr. Short in cash
3,000
Cr. Cash
3,000
Dr. Income Statement
3,000
Cr. Short in cash
Case 1

4. 3,000
Dr. Short in cash
3,000
Cr. Cash
1,500
Dr. Income Statement
1,500
Dr. Cashier Receivables
3,000
Cr. Short in cash
Case 3
Case 2
3,000
Dr. Short in cash
3,000
Cr. Cash
3,000
Dr. Cashier Receivables
3,000
Cr. Short in cash

5. Example:-
If Cemex company checked the cash account and discover the actual balance exceeds the
book balance by 7,000.
1) How would it handle that case ?
2) What’s the effect on income statement and balance sheet ?
7,000
Dr. Cash
7,000
Cr. Unexpected revenue
1)
2)
Assets will increase because there’s increase in Cash.
Net income will increase because there’s increase in Revenue.
Answer

6. Dr. Petty Cash
Cr. Cash
Dr. Miscellaneous Expense
Cr. Petty cash
Dr. Petty cash
Cr. Cash
The operation of a petty cash fund, involves three
steps:
1) Establishing the fund
2) Make payment from the fund
3) Replenishing the fund

7. Example: IBO Inc. gave $3,000 as petty cash to Mr. Diaa.
Mr. Diaa pays miscellaneous expenses amounted to $2,500.
The company refilled the petty cash amount with 2,000.
Prepare the journal entry to record the above transactions.

8. Example: The pantry has been given $6,000 as petty cash on 1/12/2022. On
5/12/2022 The pantry pays miscellaneous expenses of $2,000. The company decided to
make the petty cash balance reach 9,000 and paid the required amount on 10/12/2022.
Prepare the journal entry to record the above transactions.

9. Bank Reconciliation
XX
Balance according to
Bank statement
Add:
X
Deposit in transit
Less:
(X)
Outstanding checks
X
Add or Less: Bank error
XXX
Adjusted bank balance
XX
Balance according to
Firms' books
Add:
X
Interest Revenue
X
Bank collection
Less:
(X)
Service Charge
X
Add or Less: Firm error
XXX
Adjusted bank balance

10. Example:
Cemex Company’s books show a cash balance at the CIB on November 30, 2022,
of $10,000. The Bank statement covering the month of November shows an
ending balance of 9,000. An examination of Cemex’s accounting records and
November Bank statement identified the following:
• A deposit in transit of 2,000 doesn’t appear on Bank statement.
• Outstanding checks of 4,000.
• Interest Revenue of 3,000.
• Bank fees of 6,000.